Why the yen matters

Katie Martin (0:09)

Currencies lack the glamour of stocks and the clever, clever cachet of bonds, but the cool kids know that the foreign exchange market is the biggest and baddest of them all, and the one that really matters. And listeners, wild things are happening here. It's like all the Christmases and birthdays combined are currency nerds, and everyone else needs to care about it too. The main character energy here belongs to the Japanese yen. It's weak, really weak. Japanese authorities have been battling, kind of, to prop it up. And now they have a new comrade in this effort, the United States of America, which is buying yen and pledging further support. This is super rare. Countries hardly ever team up on currencies like this, and it might not be over. So today on the show, we're going to tell you what's going on, the real reasons why and whether it's going to work.

This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist at the FT in what used to be a lush and leafy London until someone cancelled rain. With me in the studio down in the bunker at FT Towers, I have the very lovely Toby Nangle from FT Alphaville. He's a nerds nerd who's been digging through the archive on this historic joint intervention. Toby, thank you for coming. You're a big upgrade on Rob.

He's out in the wilderness. We can forget about Rob. Okay. Let's start with what's going on. Just crazy stuff for people who are very boring like me, who've been covering and thinking about currencies for a long time. So, late on July 31st, the market was nice and quiet. It was like a Friday evening in London.

Something went bump in the night, and it was the dollar-yen exchange rate. So, bring people up to speed. What's going on here?

Toby Nangle (2:11)

Okay. Right. So, I guess two things happened. First of all, the Ministry of Finance and the New York Fed, well, the Treasury through the New York Fed, have been rattling sabres for a little while, and the Japanese have actually been doing bits and bobs of intervention. But as you say, at the end of July, the Ministry of Finance came in with 8.45 trillion yen worth of interventions, which is worth $53 billion. So, you know, quite a chunk of change.

Katie Martin (2:35)

So, that's on the Japanese side. That's on the Japanese side. They've been trying to control this thing, trying to prop the currency up, because it's hit its weakest point in like 40 years against the dollar, like weak, weak, yeah, properly weak. Yeah, yeah.

Toby Nangle (2:47)

And then, you know, along come the US and the US have, they joined the party too.

Katie Martin (2:53)

The sort of long and short of it, I guess, is that the US came in through the New York Fed and just bought a truckload of yen in an effort to push the value of the currency up. And, you know, maybe to normal people, that just sounds like, oh, okay, they're just, you know, propping a currency up when it's super low. But like finance people were all like, I'm sorry.

Like, what? Like, because I got, you know, I heard from someone in the market on that Friday night saying, you know, got a weird one for you here. Like New York Fed's in the market buying yen. And I was like, okay, dude, you know, it's Friday night. Things can get exaggerated. But no, that was exactly what was happening. But give us a sense of how unusual this really is.

Toby Nangle (3:37)

Okay, right. So I still think of myself as a young, sprightly person, but I'm properly old now.

I started working in the city in 1997 And I remember the New York Fed intervention in 1998, in June. That was a huge, big deal. And then the next big coordinator intervention across different countries was in the wake of the tsunami, the Fukushima thing. That was in 2011 But those are the two instances. That's it. That's my entire crew. We've just had the third one.

Katie Martin (4:10)

Yeah.

Toby Nangle (4:10)

So it is a big deal. It is unusual.

Katie Martin (4:13)

It's extremely unusual. Now, a few interesting things here. So although we're saying this is super unusual and it really is, and the yen, it should be stressed as one of the most actively traded currencies in the world. It's the third most actively traded currency in the world. It's a biggie. But weirdly, if you think back to, I think it was October last year, under the direction of Scott Besson, the US Treasury Secretary, the US also stepped in to support the Argentine peso.