“It Most Often Works, Just Not Always”

By Eric Peters, CIO of One River Asset Management

“Yen moves have been quite rapid over the past few days,” Japan’s Finance Minister told reporters.

“If we were to step in, we will do so swiftly without any interruption,” continued Suzuki, threatening to sell US dollars and buy the Yen.

He wasn’t the only Japanese public servant to muscle markets. BOJ central bankers created Yen with the click of a mouse and purchased Japanese government bonds to prevent their prices from falling. This prevented yields from rising, which made the bonds less attractive, resulting in Japan’s utterly awful 25yr JGB auction.

You see, when governments hold interest rates artificially low, their currencies weaken, which lifts inflation, and this makes bonds even less attractive if yields are not allowed to rise. Such interventions are therefore unsustainable. And yet, governments engage in such action, hoping temporary support can turn the tide.

It most often works. Just not always.

And it is during those exceptional cases that the biggest market movements occur.

“Our nation’s rail system is the backbone of our supply chain,” said Biden, announcing a tentative deal to avert a rail worker strike.

“It’s hard to realize this but everything from clean water to food to gas – every good that you need seems to end on a rail getting delivered to where it needs to go,” explained America’s president, justifying a 24% pay increase to the unionized workers, delivered over 5yrs, benefits boost too.

This, of course, is all part of the mega macro trend of restoring balance to the distribution of economic spoils between capital and labor. It will surely inspire higher wages across the US economy. Lifting domestic inflation.

Which will pressure America’s public servants to raise interest rates higher still, boosting the dollar against currencies like the Japanese Yen, further complicating Tokyo’s efforts to manipulate their markets.

Which they’ll surely continue to do, knowing that it most often works. Just not always.