In a move that has confused major financial players, the United States has bought Japanese currency in a joint operation with the Japanese government.

The move, described as historic, is reportedly the first time the US has intervened in the yen since a tsunami and earthquake hit eastern Japan in 2011.

The motivation behind the move remains unclear, with the US government claiming they are “always there for Japan” while investors question whether it was in Washington’s best interests.

On Taking Stock, Alan Dunne, founder and CEO of Archive Capital, said US Treasury Secretary Scott Bessent’s experience is currency trading in key to understanding the move.

Bessent has been involved in foreign exchange trading since 1992 and bet against the yen in 2013, reportedly making $1.2 billion.

Mr. Dunne also pointed to historical trends in the yen’s valuation as relevant. Having risen in value in the 1990s, the yen has been on “a weakening trend” in the years since.

He believes that Bessent views interventions as a way to “stem the trade and try and turn the trend temporarily” – hoping to stop the decline of the yen’s value

Weakening currencies

Mr. Dunne also acknowledged that if the yen was to continue decreasing in value, economies in the region might also be impacted.

In particular, he said that a weaker yen would likely put pressure on China to devalue its currency, the yuan.

He also pointed out that, despite becoming less vocal since re-election, Trump has called for a weaker dollar. This leads Mr. Dunne to suggest the US is acting in its own self-interest.

Repo facility

Mr. Dunne noted the “really interesting aspect” of this event is that Japan committed to intervene through the US Federal Reserve if it wishes to invest in the yen in the future.

This would mean that Japan, a large holder of dollars, would borrow against the dollar instead of selling its holdings.

Mr. Dunne asserted that this highlights the current sensitivity of the dollar.