00:00They say that when a butterfly flaps its wings in Tokyo, it can cause a tsunami somewhere else.
00:05We had the biggest intervention to prop up the yen on record.
00:09It wasn't just the Japanese buying yen to strengthen it.
00:12The U.S. Treasury got involved as well.
00:16Why?
00:16The yen has been weakening steadily for decades.
00:20It's basically lost two-thirds of its buying power compared to everybody else over the last three decades.
00:26That makes Japanese goods competitive, but it makes it far too easier for foreigners to buy up Japanese assets.
00:33This isn't the first intervention.
00:35There have been a series of interventions not involving the U.S. over the last few years,
00:39and you'll notice there's a common thread, which is that none of them have worked.
00:44The big difference this time is that the Americans are also involved.
00:48That's probably because, first of all, there is a desire to do a political favor to Senai Takeuchi,
00:53who is a similar kind of a conservative populist to Donald Trump and who they might well want to do
00:59a favor to,
01:00but also because there are risks to financial stability for the global system if the yen goes too far.
01:07Two years ago, you saw a very, very sharp appreciation of the yen,
01:11and that led to sell-offs around the world for a few weeks.
01:15You don't want a repeat of that.
01:16Is this going to work?
01:17Now, you could argue that it might well not, because ultimately this depends on Japanese monetary policy
01:24and Japanese fiscal policy.
01:26Monetary policy, its interest rates are far lower than everyone else's.
01:30That makes it far less attractive to park money in the yen.
01:34And its fiscal policy, the country famously has a huge overhang of debt.
01:39That makes it much less attractive to park in Japanese assets or other things equal.
01:46So you can see why the Japanese and the American authorities have intervened.
01:51Japan needs to borrow less and charge more for that borrowing.
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