Another Piece Of The Yen Puzzle

Connecting the Dots

Yesterday’s New York Times (NYT) guest essay by Eswar Prasad adds another important dimension to the yen story. Mr. Prasad argues that the Trump administration’s recent currency interventions have not been acts of benevolence but instruments serving U.S. economic, political, and geopolitical objectives. He points to Argentina, where U.S. support for the peso came ahead of a crucial election involving a close Trump ally, and then turns to Japan: if Japan were forced to sell Treasuries to obtain dollars to support the yen, U.S. bond yields would likely rise, increasing borrowing costs for the federal government, businesses, and consumers.
 
What Mr. Prasad does not do, however, is connect those two observations to the approaching U.S. midterm elections. That is the question I continue to raise. If this administration has already shown that it is willing to use currency intervention for political purposes, and if the present intervention helps restrain U.S. interest rates and borrowing costs, should we really treat the timing—just three months before a crucial election—as incidental?
 
The Financial Times sees Treasury-market protection. The Wall Street Journal (NWSA) sees QE-like easing. Mr. Prasad sees political purpose. Put the pieces together and the possibility of election-year backdoor QE becomes increasingly difficult to dismiss.

New York Times
The Real Reason Behind Trump’s Yen Intervention
Aug. 6, 2026

It’s rare for the United States to intervene in another country’s currency policy. It usually happens because there is a crisis. But in recent cases involving Argentina, Japan and the United Arab Emirates, none of those countries had reached the level of emergency usually required.

In all three the Trump administration has directly supported or offered support for their currencies. Why would the administration do this? After all, it seems risky and expensive to buy another country’s currency or even offer to temporarily swap dollars for that currency, especially one whose value is falling.

None of these actions were born of benevolence. The administration has U.S. economic interests in mind but is also keen to propagate its policies and reward its allies. It has thus made currency markets instruments to overtly promote not just economic but also political and geopolitical objectives.

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