Why the yen matters

Summary

Podcast Summary: Unhedged – "Why the yen matters"

Date: August 11, 2026
Hosts: Katie Martin (FT Markets Columnist), Toby Nangle (FT Alphaville)

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Episode Overview

In this episode of Unhedged, host Katie Martin is joined by Toby Nangle to dissect the high-stakes drama playing out in the world's largest financial market: foreign exchange. The spotlight is firmly on the Japanese yen, which has plunged to multi-decade lows, prompting an exceptionally rare joint market intervention by Japanese authorities and—unusually—the United States. The hosts unpack why this is happening, what makes it such a historic moment, the under-the-radar motives driving U.S. involvement, and whether these interventions are likely to succeed.

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Key Discussion Points & Insights

1. The Japanese Yen in Crisis

• The yen recently reached its lowest point against the dollar in 40 years.
• Japanese authorities had been attempting to stabilize the currency for some time when, late on July 31, the U.S. joined in—a move that stunned the market.
• Quote:

  "It's like all the Christmases and birthdays combined for currency nerds."
  — Katie Martin (00:14)

2. Details of the Intervention

• At the end of July, Japan's Ministry of Finance spent 8.45 trillion yen (~$53 billion) to prop up the yen.
• Shortly after, the U.S. Treasury (via the New York Fed) also intervened by purchasing yen. Unlike a straightforward dollar-yen trade, the U.S. did so by selling euros for yen.
• Quote:

  "Countries hardly ever team up on currencies like this and it might not be over."
  — Katie Martin (00:45)

Unusual Elements:

• The joint intervention is extremely rare: Only two precedents in the last few decades (1998 and 2011).
• Even rarer is the U.S. using euros (not dollars) to intervene and doing so without informing the European Central Bank until after the fact.
  • Quote:

    "They hadn’t given the European Central Bank a heads up… It’s a bit of a faux pas."
    — Katie Martin (07:09)

3. Motivations Behind U.S. Involvement

• While on the surface a show of support for Japan, the U.S. may have its own priorities—primarily, protecting its own government bond market.
• Japan holds over $1 trillion in U.S. Treasuries (about 4% of the total) and could dump these if forced to defend its currency, potentially driving up borrowing costs for the U.S.
• Quote:

  "The very strong suspicion here is that this is the real target of this intervention. Like what the US is stepping in to support—it’s not really the yen, it’s itself."
  — Katie Martin (12:42)

The Domestic Problem for Japan:

• Raising interest rates to support the yen would be politically and economically risky inside Japan, given decades of ultra-low rates.
• The alternative—selling U.S. Treasuries—would be destabilizing for global bond markets, especially when U.S. fiscal deficits are already creating heavy supply.

4. The FIMA Repo Facility as a Pressure Valve

• U.S. and Japanese authorities suggested future interventions might use the Federal Reserve's Foreign and International Monetary Authorities (FIMA) repo facility.
• This allows Japan to temporarily exchange Treasuries for dollars—accessing liquidity without actually selling U.S. bonds.
• Quote:

  "You can take them to a pawn shop, get dollars back, and no one has to sell a Treasury. That’s the important bit."
  — Toby Nangle (15:24)

Market Perceptions:

• The explicit signaling toward FIMA is interpreted as U.S. concern about Treasury sales.
• The facility is more expensive than private repos, raising questions about why it’s being spotlighted—perhaps as a deterrent or an implicit plea to foreign holders.

5. Effectiveness & Limits of the Intervention

• The initial intervention pushed the yen from 164 back to 155 per dollar—a significant move—but about half the effect has since faded, with the yen now at 159.
• Quote:

  "About half of the effect of this intervention has already worn off. Not all of it, but about half… Why is that?"
  — Katie Martin (18:11)

• The underlying issue—Japan’s reluctance or inability to raise interest rates—remains unresolved.
• Lack of broad, global coordination (e.g., the European Central Bank’s limited involvement) further limits effectiveness.

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Notable Quotes & Memorable Moments

• On the drama of FX markets:

  "The foreign exchange market is the biggest and baddest of them all, and the one that really matters."
  — Katie Martin (00:10)

• On the rarity of interventions:

  "My entire career just had the third one... It is unusual."
  — Toby Nangle (03:37)

• On U.S. self-interest:

  “Everyone likes lovely low borrowing costs, nice free money.”
  — Katie Martin (11:42)

• On using FIMA repo:

  "This just kind of looks like an advertisement… Hey everyone, it’s all about the U.S. treasury market."
  — Toby Nangle (16:59)

• On the future of the yen:

  "Unless the Bank of Japan has a big change of heart and is able to raise rates, I think the market is going to be up for a fight on this."
  — Katie Martin (19:41)

• On joint U.S.-Japan efforts:

  "This is not that. This is the U.S. and Japan kind of freelancing in the world’s biggest market. Maybe it will work, but there are elements here that are lacking."
  — Katie Martin (19:23)

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Timeline & Timestamps for Key Segments

• [00:06–02:11] – Introduction and setting the scene: Why the yen is the "main character" in global markets
• [02:11–04:13] – Details on the July 31 intervention; how rare it is
• [05:13–07:41] – The mechanics: U.S. using euros, lack of ECB coordination, size of intervention
• [08:02–12:54] – U.S. motivations and the role of Japanese Treasury holdings; self-interest at play
• [13:44–16:06] – U.S. government bond markets, the risk of Japanese sales, and why everyone wants low yields
• [15:24–16:59] – The FIMA repo explained; why it’s seen as a warning sign
• [18:22–19:41] – Why interventions fade: structural issues, lack of coordination, need for Japanese rate hikes

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Closing: The "Long/Short" Segment

• [20:32–end] – Hosts’ lighthearted long/short picks:
  • Toby: Long rain in London (“Apparently not. I mean, not in London anyway.”)
  • Katie: Long "blockchain backed cheese loan collateral programs" — referencing Italian Parmigiano Reggiano as loan collateral, whimsically calling for rain and coolness for the cheese.

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Takeaway

This episode reveals the hidden complexities and high-level power plays at work behind the recent drama in the yen market. The hosts—chatty, wry, and deeply knowledgeable—emphasize that though currency action can seem esoteric, the forces at play impact the very foundation of global finance, from household borrowing costs to the fate of U.S. government debt. The current interventions may buy time, but the big test—a major shift in Japanese interest rates or a coordinated global effort—still awaits. Listeners are left with fresh appreciation for both the power and fragility of the currency market pecking order.

Transcript

[A]

Pushkin. 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 for 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 kinda 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 and 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.

[B]

Or on Rob,

[A]

he's out.

[B]

Hi, Rob. Anyway, if you're listening.

[A]

Hi 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 there was, you know, 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, like what's going on here?

[B]

Okay, Right. So I guess two things happened. First of all, I mean, the Ministry of Finance and the New York Fed, well, the treasury through the New York Fed have been rattling sabers 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, quite a chunk of change.

[A]

That's on the Japanese side.

[B]

That's on the Japanese side.

[A]

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 one.

[B]

Weak? Yeah. Properly weak.

[A]

Yeah, yeah.

[B]

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

[A]

The sort of long and short of it, I guess, is that the US Came in so 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, yeah, 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.

[B]

Okay, right. So I still think of myself as a young, sprightly, you know, person, but I'm properly old now. I started. I started. I started working the city in 1997, and I remember the New York Fed intervention in 1998, in June, and that was a huge, big deal. And then the next big coordinate 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 just had the third one. So it is a big deal. It is unusual.

[A]

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 Besant, the US Treasury Secretary, the US Also stepped in to support the Argentine peso. So that was very weird. And I guess this intervention in the yen is just another demonstration of the US Likes to show who its friends are and likes to show, okay, there's a country over here that's in some sort of financial distress. We are the United States of America. We're going to turn up in our superhuman or, you know, superhero costumes and save the day. It's kind of got a similar vibe about it, but so the US Rolls in, it Buys yen and that does actually kind of sort of work.

[B]

So it does, I mean it moves quite a lot. I mean Dolly yen moved over two days, 5% and then G7 major currencies, that's huge. Two day move, euro, yen, which is what they're actually intervening in to be fair, moved about 4%. But still, who's counting apart from us?

[A]

So there was a reasonable size jump in the yen. But let's just quickly rewind and go back to that point you just mentioned, which is that to do this, the US wasn't selling dollars against the yen. So it wasn't buying yen using dollars, it's. It was buying yen using euros.

[B]

Yeah.

[A]

Huh huh. Like multilateral interventions like this as we've established super, super rare multilateral interventions in somebody else's currency. I have never heard of that before, have you?

[B]

I can't think of it now, honestly. It's. Yeah, I mean it is a weird one. And you know, I mean maybe, maybe they were just doing an asset allocation change currency intervention. I don't know, it's very unusual.

[A]

But I guess the sort of most straightforward reason why they were using euros to do this is that the US has this pot of money that is available for use in stabilizing currencies and the vast majority of that, I gather is in euros and yen. That just is kind of what they've got to hand.

[B]

Yeah. So the exchange stabilization fund and then also the Fed's so called SOMA account, they kind of run as a mirror of one another and they're basically like 2/3 Euro, 1 third yen. And so you kind of go, well how much, how many euros do they have to possibly sell? If they sold every single last one of those euros and it's about 28 billion, so about half the size of the Japanese intervention if they were going to just do it that way.

[A]

But again, an interesting wrinkle here is like we say, super, I think unprecedented for, for anyone to intervene using somebody else's currency like the US has done here. But as the FT reported, they hadn't given the European Central Bank a heads up here. They, they called them afterwards and said, oh yeah, that, no, no, sure, no, yeah, we did sell euros. But there's a problem potentially here, right, because what euro assets were they selling? Were they selling German government bonds, Italian government bonds? How does this work?

[B]

So I mean on August 30th we'll get a statement and we'll find out whether assets were sold or it's quite possible that they didn't actually sell any of those assets and they just sold the currency on a kind of a forward basis and then they can just roll that without ever having to liquidate the assets. But yeah, but most of those euro assets, yeah, they're mostly in French government debt, to be fair.

[A]

Oh, really? So that's a kind of, it's a bit of a sort of faux pas, would you say? It's a, it's certainly a very weird thing to do to somebody else's currency, but why did they do this? So Donald Trump's explanation for this, I'm going to read the quote in full because it's like low key, hilarious. He said, I'm not going to do the accent. They have a weakening yen and they wanted a little bit of help and we're always there for Japan. So far, so good. And then he said, japan's been very good to us, with the exception, of course, of Pearl Harbor. You just cannot make this stuff up. But so on some level, yeah, Japan and the US are friends. Japan wanted help with its currency, which is weakening, which is a problem because it makes imports into Japan much more expensive, including oil, of which Japan has, I think, none of its oil of its own. So it needs imports. And this is pushing up inflation, which is already a bit of a problem in Japan, very, very unusually. So they wanted some help with the currency and the US was only too happy to oblige. But you have to. The us, I mean, yes, it likes to be a good global neighbor, but there's some potential self interest going on.

[B]

Absolutely, absolutely. I mean, you know, Japan is, you know, it's a, it's a large economy. It's, you know, it's, it's a, it's a really big economy. But I think that the US could probably happily ignore lots of it in different ways. But the bit it can't ignore is that it's a real global titan when it comes to government bond markets. Government bond holdings.

[A]

Yeah, this is the piece of the puzzle that you've really kind of got to understand, right? So like Japan is a massive, massive holder of U.S. government bonds. It's got over a trillion dollars worth of these things. I think That's a, about 4% of the total. Like it is the 800 pound gorilla in the US government bond market. Now if it's a problem for Japan that they think their currency is too weak, they can do one of two things. The first thing is they can jack up their own interest rates really, really hard. Now this is a problem potentially for Japan. It's Politically quite delicate and it's economically quite delicate. So we've got some analysis here from Japanese bank called Mizuho and they are pointing out that jacking up interest rates really hard, there are concerns about the impact of higher borrowing costs on households with mortgages and on small and medium sized businesses. So Japan is so unaccustomed to higher interest rates that just ratcheting them higher really quickly could have quite nasty economic effects that Japan would be quite nervous about. But option two for the Japanese authorities, if they really want to support the yen, is that they could dump a lot of these Treasuries that they currently own. Like not all of them, let's not be silly here, but they could sell a lot of them in pretty short order. They've already sold some. That's a problem for the us, right?

[B]

Yeah. I mean, so having a large amount of extra bonds being dumped onto the market on top of the 7.5% of fiscal deficit of GDP that the US is essentially dumping on the market in printing new bonds each year. Yeah, that's a big source of unwelcome supply from their perspective. We're pushing yields higher. President Trump wants yields to be low. Scott Bessant wants yields to be low. Everyone wants yields to be low.

[A]

Everyone likes lovely low borrowing costs, nice free money. And the problem that the US has is that the benchmark 10 year government bond yield, so that's kind of the borrowing costs for the US government at a 10 year horizon is already 4.7%. That's pretty high by historical standards. And the 30 year US government bond yield is like over 5, it's 5.2%. So Uncle Sam is already paying up a lot of money to borrow. And as you say, it has a 7% fiscal deficit relative to GDP. So it needs to borrow an awful lot of money to keep the wheels turning for stuff that the US wants to spend money on. Defence, education, infrastructure, all those other lovely things it likes borrowing. And normally this suits everybody because there are lots of countries around the world that have got dollars sloshing around. They need to put them in something, so they put them in US government bonds. The US wants to borrow lots of money, everybody's happy. But the very strong suspicion here is that this is the real target of this intervention, like what the US is stepping in to support. It's not really the yen, it's itself.

[B]

I think it's. Yeah, it's the US treasury market either by means of making sure that the bank of Japan or the Ministry of Finance don't sell Treasuries. But also, I mean, I think they'd quite like Japanese government bonds or JGB yields to stop going up. I mean, I think they'd be quite happy if they racked up short dated overnight rates because I think that they would believe that you'd get a flatter curve, that is to say higher short rates, but maybe lower long rates because everyone would think inflation's dead, we better buy long dated bonds. But this global bond sell off that I think Scott Besant sees Japan's role to be absolutely pivotal in is completely, as you say, square and center of the whole operation.

[A]

Because what this sort of, this has been like a simmering concern among like tedious global macro pointy heads like us that at some point like Japan will have to raise interest rates. Like Japanese interest rates were zero for like years and years and years and years and years and Japanese government bonds basically had no yield on them whatsoever for like decades. And if Japan jacks up interest rates really hard, then its borrowing costs will go up, which is kind of bad news for Japan. But suddenly it means that investors around the might say, ooh, I'd like to own some of these Japanese government bonds. And maybe Japanese investors would say, why are we bothering buying Treasuries when we can already get a decent rate on homegrown government bonds? And again, just sort of on the margins that saps demand away from the US government bond market and pushes up US borrowing costs, which again, the US is really sensitive to. I guess another sort of important part of this little puzzle is that The Japanese and US authorities after that intervention on July 31 said if they were to step in and support the yen again, they would use a super obscure facility at the Fed known as the Foreign and International Monetary Authorities Repo facility, which is called FIMA F I M A. Now this is kind of technical and you know, you and I are not super familiar with this facility and it's not really designed for this sort of thing. But like, what is it and why is it preferable to both sides than just selling US government bonds?

[B]

So this isn't something that I'm a specialist at, certainly. It's basically a way in which the Japanese can take their US Treasuries and without releasing ownership from them, they can kind of take them to a pawn shop with a wife, get dollars back and sell those dollars and still be on the hook for whether treasury prices go up or down. And no one has to sell a Treasury. That's the important bit. No one has to sell a Treasury, but you can release the dollars attached to the treasury by using this facility. So that's what's drawn a lot of attention to it. It's made people think, oh, okay, this definitely is about the US treasury market after all. Yes, right.

[A]

That's the thing. It does indicate that the US is very sensitive possibility that Japan could sell Treasuries to try and fix this. So the explanation at the Fed, the word temporary comes up a lot. It's a temporary backstop source of temporary dollar liquidity. Approved FEMA account holders can temporarily exchange their treasury securities for US dollars. But the important part of the, of the Fed's own explanation of what this facility is that it means that you can free up dollars into the system without sales of the securities in the open market. So again, this is just like to kind of market watchers, to the sort of wonks who care about this stuff, a massive red flag that says please don't sell our Treasuries. It would be really bad. So maybe we're all reading too much into it, but this is certainly taken as a bit of a tell.

[B]

Yeah, it kind of looks like an advertisement because like, you know, the proper, the proper deep nerds on this stuff go, would you use fema? You could use the private repo market and you could do it way more cheap, you know, than actually using this particular facility, which is quite an expensive facility to use. So the fact that they're like pointing towards with a big flashing sign, this facility just kind of looks like either there's something very weird coming down the pipe that we don't know about yet about the changes to it or, or that, hey everyone, it's all about the U.S. treasury market.

[A]

Yeah, and they're going to jack up the size of this thing, aren't they? So that it will make more, more dollars available to counterparties on, on a daily basis. So yeah, I know it's deep in the weeds, but this is just a kind of a little bit of a, a show and tell that yeah, we're worried about people selling Treasuries, but so if you look at the exchange rate, the dollar got as high as 164 yen. That was the point at which the US and Japan had a sense of humor failure, banded together and intervened. They bought yen that got the exchange rate pretty much down to 155. That's a lot. 164 to 155 is a lot. However, we're now back at 159. That kind of means that like about half of the effect of this intervention has already worn off. Not all of it, but about half of it. Like why? Why is that?

[B]

I mean, I would say it's because you haven't actually addressed any underlying fundamentals.

[A]

Right.

[B]

While we won't go step by step through 98, within eight days it was completely unwound. And now we're just a few days and we're halfway through that already. It's looking kind of similar, maybe.

[A]

Yeah. I think the thing that everyone's waiting for is when does Japan buckle on interest rates and just bite down on it, raise interest rates? Because again, unless the sort of domestic situation is pulling in the same direction, kind of doesn't work. But also from some of our reporting, what a few people have said to colleagues of ours is that the fact that this isn't properly coordinated, the fact that the Europeans aren't on board, they were only told afterwards, even though this was done in their currency, it undermines it. So for big interventions to have any chance of working, even temporarily, really, they've got to be proper global efforts. And this is not that. This is the US and Japan kind of freelancing in the world's biggest market. And maybe it will work, but there's a few elements here that are lacking in terms of really kind of giving it all the ingredients for success. So my bet is, unless the bank of Japan has a big change of heart and is able to raise interest rates very quickly, which again, would be difficult politically, I think the market is going to be up for a fight on this with Scott Bessant and the U.S. what do you reckon?

[B]

It kind of looks like it's going to be testing him. Right. So see what happens. Push it a little weaker, you know, Is there anything more coming?

[A]

So, a lot of drama here, listeners. If you have any further insight into what's going on, or if you have strong views on whether or not this will work, you know where to find us. Unhedgedt.com but we're going to be back in just one sec with long Short. Right, we are back for long Short. That part of the show where we go long a thing we love or short a thing we hate. Toby Nangle from FT Alphaville. What are you saying?

[B]

Well, I. I think I'd really like to go long. Some rain, please.

[A]

Oh, my days. Will it ever rain?

[B]

Apparently not. I mean, not in London anyway.

[A]

Brian, our editor, hates it when Brits talk about the weather on the podcast. But suck it up, Brian. It just has not rained for like six weeks. Or something. We're desperate. Yeah. Rain, please. I am long cheese. Specifically, I am long, and I quote, a blockchain backed cheese loan collateral program. Glorious story in Fortune today piece saying that there is a bank vault in the hills of Italy that holds more than half a million wheels of Parmigiano Reggiano worth over 300 million euros. Anyway, it's too hot. The cheese is too hot. I'm guessing it smells bad. But also, these cheese wheels are used as loan collateral for loans to local dairy farmers. This is all bad. I'm rooting for the cheese. I hope the cheese is okay. I think we all need for it to cool down. So, listeners, send us your favorite cheese unhedged dot com. In the meantime, we will be back on Thursday, so please do a little rain dance, stay cool and listen up. Then.