US revealed to have rarely bought yen, tech stocks fear not appreciation

According to the Financial Times, citing informed sources, the U.S. Treasury has instructed the Federal Reserve Bank of New York to sell euros and buy yen. This marks the first time in nearly 30 years that the U.S. has directly supported the yen in coordination with Japan. It does not equate to the U.S. "bailing out" U.S. stocks, nor does it imply that a rising yen will necessarily cause tech stocks to fall. What truly warrants caution is the risk of sharp, short-term exchange rate fluctuations triggering forced liquidation of global leveraged positions.

During the last two trading days of July, a rare scene unfolded in the yen market.

The Financial Times reported that the Federal Reserve Bank of New York, following instructions from the U.S. Treasury, sold euros and bought yen, with transactions executed by Wall Street banks. Previously, Japan was also believed to have entered the market to buy yen. If confirmed by subsequent official data, this would be the first time since 1998 that the U.S. has directly purchased yen to support Japan.

The most significant aspect of this event is not how much the U.S. bought, but rather that the market witnessed for the first time: Washington is willing to work with Tokyo to prevent disorderly depreciation of the yen.

Why is the U.S. Helping Japan Support the Yen?

In late July, the USD/JPY exchange rate briefly broke through 163, pushing the yen to its lowest level since 1986. A weak yen drives up Japan's energy and raw material import costs and fosters a one-sided market expectation that "borrowing yen to buy overseas assets guarantees profits."

The U.S. and Japan had previously agreed publicly that exchange rates should primarily be determined by the market, but intervention is permissible when volatility becomes excessive and trends become disorderly. Therefore, this action is more akin to hitting the brakes on one-sided trading rather than pegging the yen to a specific fixed price.

An easily overlooked detail is that the U.S. reportedly sold euros, not dollars, and did not directly sell U.S. Treasuries. The interpretation that this action was taken "to prevent Japan from selling U.S. debt" currently lacks sufficient evidence. The U.S. Treasury has not yet disclosed the transaction size, and Japan's total involvement in this round will only be officially revealed on August 28.

What Tech Stocks Really Fear is a "Sharp Rise" in the Yen

The yen has long been a crucial low-cost funding currency globally. Investors borrow yen to purchase U.S. stocks, U.S. bonds, or crypto assets; this is commonly known as the yen carry trade.

If the yen appreciates gradually, funds can reduce leverage incrementally, and the market may not experience significant volatility. However, if the yen rises sharply within one or two days, borrowing costs will surge suddenly, forcing some investors to sell overseas assets and buy back yen to repay debts.

Tech stocks and semiconductors typically have higher valuations, more crowded positions, and better liquidity, making them prime targets for profit-taking during deleveraging events. But this does not mean that "a rising yen inevitably leads to falling tech stocks." The magnitude of the impact depends on the speed of appreciation and whether the stock, credit bond, and government bond markets deteriorate simultaneously.

The Ideal Outcome: Ending One-Sided Trends

For global markets, continued disorderly depreciation of the yen is undesirable, just as a sudden spike is equally dangerous. A more stable path involves policy measures breaking the one-sided short-selling expectation, allowing the yen to adjust orderly thereafter, giving leveraged funds time to cool down.

Therefore, assessing whether this intervention will impact U.S. stocks is less useful than monitoring the speed of exchange rate changes. Only when the yen rises sharply, accompanied by simultaneous weakness in tech stocks, credit bonds, and government bonds, could an exchange rate event escalate into a wave of global deleveraging.

The U.S.'s rare intervention has altered market perception regarding policy boundaries: shorting the yen is no longer a trade where government intervention risks can be ignored. For tech stocks, the real danger is not that the yen becomes more expensive, but that everyone rushes to repay their debts simultaneously.

This article serves solely for public market information interpretation and does not constitute any investment advice.