High oil prices, big oil profits

**SPEAKER_1** (0:00)
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**Kai Rizdal** (0:31)
Go to the grocery store, check, wash the dog, yep. Intervene in global currency markets, done, done and done. From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Rizdal. Monday, today, August the 3rd. Good as always to have you along, everybody. So, you know that thing where you've got a bunch of stuff, you gotta get done, so you make yourself a quick to-do list? Turns out, Treasury Secretary Scott Bessent is like that, too. A Reuters photographer grabbed a picture of the scratch pad in front of Bessent at a cabinet meeting last Friday. To do, it said, right across the top, and then underneath, buy Japanese yen, 5 to 10 billion dollars.
That's true. It actually happened. As did the United States and Japan working together over the weekend to prop up the value of the Japanese currency, and they hope to stop a slide in the yen that started back in early May. Now, you may well be wondering, why would the Treasury Secretary have buying Japanese yen on his to-do list? Well, this is where I tell you that in this interconnected world of ours, what happens in Japan does not stay in Japan. Marketplace's Nova Safo gets us going.

**Nova Safo** (1:55)
The US and Japan said that they took their joint action because they're friends, and as we know, that's what friends do, they help each other out. But that's not exactly the whole story.

**Ishwar Prasad** (2:06)
Japan has been a large buyer of US government bonds.

**Nova Safo** (2:12)
Ishwar Prasad is Senior Professor of Trade Policy at Cornell University. In fact, Japan holds the most US bonds of any foreign nation, more than a trillion dollars' worth.

**Ishwar Prasad** (2:24)
Japan is getting rid of its US treasuries. In other words, it's selling dollars and buying yen in order to stabilize its own currency.

**Nova Safo** (2:34)
Japan has spent tens of billions of dollars to do so. It needs to, says Catherine Dominguez, Professor of Economics and Public Policy at the University of Michigan.

**Catherine Dominguez** (2:44)
They are a large importer of a lot of goods, most importantly, oil.

**Nova Safo** (2:50)
And oil prices are already up because of the Iran War.
But Japan selling US bonds is not great for the US because it lowers bond prices and raises yields. Translation, higher interest rates for you and me. The US buying yen alongside Japan sends a signal to markets, says Lee Hardman, a Senior Currency Economist at the Japanese bank MUFG.

**Lee Hardman** (3:15)
Given how important the US is in the world and in terms of financial markets, that definitely helps to support the yen.

**Nova Safo** (3:23)
The US is also considering expanding a lending tool, so Japan can borrow against its bond holdings, not sell them.

**Lee Hardman** (3:30)
It was obviously put forward by the US to try to ease the risk of further selling in the US. Treasury market.

**Nova Safo** (3:38)
There's another reason to keep the dollar from getting too strong against Japan's yen. Trade, says Catherine Dominguez of the University of Michigan.

**Catherine Dominguez** (3:47)
If the dollar strengthens, that hurts our exports on world markets, and makes imports more attractive.

**Nova Safo** (3:56)
Because exports will be more expensive overseas, and imports will be cheaper here at home. Exactly the opposite of what the Trump administration is trying to achieve with its tariff policies.
I'm Novasafu for Marketplace.

**Kai Rizdal** (4:10)
Wall Street today. Well, there's peace in the Middle East, I guess. Don't take my word for it. Look at the markets. We'll have the details when we do the numbers.
New week, new month, not a bad time to step back and do a, so where are we right now, check in.
Nicole Cervi is going to help us with that. She's an economist at Wells Fargo. Nicole, great to have you back on the program.

**Nicole Cervi** (4:53)
Thanks for having me.

**Kai Rizdal** (4:54)
Let's do a little level set here, shall we, before we get into the comings and goings of this economy. What's your broad sense right now of how things are going?

**Nicole Cervi** (5:02)