The US Treasury's intervention to purchase Japanese yen, while officially aimed at stabilizing a key ally's currency, effectively underpinned Wall Street's record-breaking rally, The New York Times reported on the 5th (US local time). The S&P 500 index reached an all-time high following the large-scale foreign exchange intervention, benefiting from stabilized US Treasury yields. Experts analyzed that the intervention played a decisive role in blocking a chain reaction in global financial markets: yen collapse → Japan's US Treasury selloff → Treasury yield surge → increased interest burden on AI Big Tech → US stock market crash. The move came as Big Tech companies' massive corporate bond issuances for artificial intelligence investments pressured bond markets and stirred stock market anxiety, with the yen plunging to its lowest level in 40 years creating critical crisis sentiment.
S&P 500 Index Hits Record 7,793.68 Intraday
The S&P 500 index climbed to 7,793.68 during trading, reaching an all-time high. The newspaper reported that the index achieved this record supported by stabilized US Treasury yields following the US Treasury's large-scale foreign exchange market intervention.
US Treasury Intervention Prevents Japan's $1 Trillion Treasury Selloff
Japan, the world's largest foreign reserve holder with over $1 trillion in US Treasuries, faced pressure to liquidate significant Treasury holdings to defend the yen. If Japan's Treasury selloff had materialized, the 10-year US Treasury yield—the benchmark for global long-term interest rates—would have surged, dramatically increasing US corporate funding costs and triggering a stock market crash. However, the US Treasury's joint yen-buying intervention with Japanese authorities calmed Treasury market selloff fears. As Treasury yields stabilized, funding concerns dissipated and the New York stock market immediately recorded new all-time highs, according to the analysis.
Authorities Balance Yen Levels to Avoid Carry Trade Unwinding
Experts noted that US authorities maintained the yen value at an "appropriate level" while remaining cautious of excessive yen appreciation. If the yen strengthened too significantly, large-scale liquidation of "yen carry trade" funds—which borrow low-interest yen to invest in US stocks and other assets—could crash the US equity market. George Goncalves, macro strategist at MUFG Securities, stated: "Connecting all the dots, this foreign exchange intervention was ultimately a decisive measure to resolve the typical global macro dilemma that had begun surfacing."
FAQ
What did the US Treasury do on the 5th regarding the yen?
The US Treasury conducted a joint yen-buying intervention with Japanese authorities on the 5th (US local time), as reported by The New York Times. The intervention stabilized US Treasury yields and supported the S&P 500 index reaching an all-time high of 7,793.68 intraday.
Why did the US intervene in the yen market?
The intervention prevented a chain reaction in global financial markets. With the yen at a 40-year low, Japan—holding over $1 trillion in US Treasuries—faced pressure to sell these holdings to defend its currency. Such a selloff would have spiked Treasury yields, increased Big Tech funding costs amid massive AI-related bond issuances, and potentially crashed US stock markets.
How does yen carry trade affect US stocks?
Yen carry trade involves borrowing low-interest yen to invest in higher-return assets like US stocks. If the yen strengthens too much, these trades unwind as investors sell US assets to repay yen loans, potentially causing a US stock market crash. Experts noted US authorities maintained yen at an "appropriate level" to avoid excessive appreciation that would trigger mass carry trade liquidation.
