Trump Pivots Back to Iran Diplomacy

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Luke Vargas (0:17)

As President Trump pivots back to diplomacy after toning down fresh threats to strike Iran, we'll look at one Gulf ally starting to question the logic of basing American troops on its territory.

David Cloud (0:29)

They like to have the US there as a kind of visible deterrent. Although it has to be said that it hasn't quite served that purpose in this conflict since the US began the attack, it has turned it more into a target than a deterrent.

Luke Vargas (0:43)

Plus, the US steps in to help Japan boost the weakening yen, and California's proposed billionaire tax gets a backing from the state's Democratic Party. It's Monday, August 3rd. I'm Luke Vargas for the Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

For the first time since the late 90s, Japan and the US are intervening to boost the yen. That is after the currency hit a 40-year low against the dollar last month, a depreciation that had gathered steam as investors flocked to the dollar amid tensions in the Middle East. Given that the last time Washington and Tokyo worked in concert to buy up the yen was at the height of Asian financial crisis in 1998, I asked Journal Tokyo Bureau Chief Jason Douglas if that means we're in a similar crisis point.

Jason Douglas (1:32)

The weakness of the yen, there's a bunch of factors behind it. Some of them are investor anxieties around things like fiscal policy, around debt levels in Japan, around inflation. But there are also other factors. You mentioned the strong dollar. So one thing we've seen a lot of is money fleeing Asia to go into AI stocks of the US. There's this colossal AI boom and that is a factor that's weighing on all Asian currencies and not just the Japanese yen. So the weakness has much more to do with these idiosyncratic factors that we're seeing at the moment. And there's no sort of sign of any broad crisis in the same way that there was in the late 1990s.

Luke Vargas (2:05)

While the yen is rising in response to the latest intervention, Jason told me that boosting the currency over the long haul won't be easy.

Jason Douglas (2:13)

The Japanese have intervened by themselves solo a couple of times over the last year or so, most recently in April and May defending the yen. And what we saw was the yen just drifted right back to where it was before that. It's important to understand what modern currency interventions are for. I don't think it's right to think of them as definitively changing the direction of a currency. That's not really what this is about. Japan is a huge importer of oil and energy from the Middle East. It is a big problem for them if the yen sinks so far that it pushes up their import bill for energy. So by putting a floor in the yen, they're kind of putting a cap the price that they have to pay for energy at this moment, which is really important. And to see a durable change in the direction of the currency, we probably have to see some changes in the Japanese economy. But as we see interest rates increase, if we see growth pick up, if we see some of the fruits of the investment plans that the current administration has in train begin to appear, then perhaps yen weakness won't be as refined.

Luke Vargas (3:11)

President Trump has once again backed off ordering a major strike on Iran just hours after saying he was prepared to launch the biggest attack since World War II. Instead, Trump was talked down by US allies, including Saudi Crown Prince Muhammad bin Salman, who urged a de-escalation of the crisis. Iranian representatives reacted positively to a plan presented by Qatari mediators on Saturday to open the Strait of Hormuz, and oil prices are lower today ahead of fresh US-Iran talks that Trump said could start this afternoon.

At the same time though, we report that behind the scenes, Gulf countries are growing frustrated about what they see as a lack of a clear US strategy to end the war that subjected them to frequent Iranian attacks and strained their air defenses. And the latest country to face such attacks is Kuwait, which was forced to shoot down an Iranian drone volley on Saturday. Since the Gulf War, Kuwait had viewed the basing of US troops in its territory as an important security deterrent, but its journal correspondent, David Cloud, joins me to discuss, the country is waking up to some of the risks that come along with that American presence.