Full transcript
0:02The yen has been at levels not seen in
0:05[music] four decades this year.
0:07>> 1986 the last time that we were this
0:09weak for the yen against the US dollar.
0:11>> In July 2026, [music]
0:13it took 164
0:15yen to buy a single US dollar. Five
0:18years ago, it was 102.
0:21>> The yen is a problem [music]
0:22not only for Japanese policy makers who
0:24are worried about the cost of living,
0:25but also for America.
0:27>> That's because Japan owns the most US
0:30debt of any country except America
0:32itself. And US Treasury Secretary Scott
0:36Bessent has not been shy about getting
0:39involved.
0:40>> I have asymmetric information.
0:42I am the house now.
0:44>> What is absolutely unprecedented is the
0:46way that Scott Bessent [music] has gone
0:47about doing it. He's essentially saying,
0:50"Don't bet against me."
0:52>> So, why is the US trying to control the
0:54yen?
0:57The yen is weak because the Bank of
0:59Japan has kept interest rates low.
1:01That's good news for some.
1:03>> In Tokyo, there's tourists everywhere
1:05right now and for them shopping is a
1:07bargain. Companies [music] like Toyota
1:09and Nissan, they're seeing strong
1:10profits due to the weak yen.
1:12>> But, bad news for others. [music]
1:14>> Japan is an island that imports
1:16virtually all of its energy.
1:18>> For Japan's Prime Minister Sanae
1:19Takaichi, this creates political
1:22problems.
1:23>> When people's cost of living goes up,
1:25her popularity goes down. [music]
1:27So, she has a real incentive to make
1:29sure that the yen strengthens and people
1:32have more purchasing power.
1:33>> Plus, Japan's trying to protect its
1:35fragile growth and pushing up interest
1:38rates too fast puts that at risk.
1:41>> And if Japan doesn't get this [music]
1:42right, it could wipe out all the
1:44momentum that's behind the Japanese
1:45economy right now.
1:46>> As Takaichi tries to walk a fine line,
1:49she's also having to keep the US happy.
1:52Scott Bessent wants to keep US borrowing
1:55costs down and to do that, he's leaning
1:58on Tokyo. Here's why.
2:03The US has a mountain of debt, and the
2:06cost of servicing it is the highest it's
2:09been for decades. On 10-year US
2:12Treasuries, the yield, which is how much
2:14the US pays bondholders, has jumped from
2:171.7%
2:19in 2022 to above 5%. [music]
2:23That means the US needs to pay more to
2:26service its 40-plus trillion-dollar
2:29debt. When the yen weakened this year,
2:31Japan started selling US bonds to
2:34protect its currency.
2:36>> That's going to [music] impact borrowing
2:37costs in the US 10-year bond yields
2:39higher, and that's something that Bessen
2:41doesn't want.
2:42>> Japan uses the cash from selling those
2:44bonds to buy yen, and they were helped
2:47by the US.
2:57The US isn't helping Japan out of
2:58charity. It wants to avoid higher
3:01yields, and Japan is being told to play
3:04ball.
3:05>> US policymakers, specifically Scott
3:07Bessen, openly telling Japan's finance
3:10minister and [music] the Bank of Japan
3:11governor what to do with rates.
3:13>> When we intervene with the Japanese yen,
3:17I have pretty good insight into what the
3:20Japanese what the Bank of Japan's
3:21[music] going to do. You can bet against
3:23me if you want.
3:24>> So, this is a really extraordinary,
3:26unusual campaign by Bessen to kind of
3:28bend the market to his will.
3:30>> The value of the yen isn't just a
3:33US-Japan problem.
3:35>> So, the yen has been a very popular
3:37funding currency. So, this basically
3:39means that investors borrow [music]
3:41cheaply in the yen, and they invest in
3:43higher-yielding assets in countries like
3:45the US, Mexico, Brazil, and they profit
3:48off of that interest rate differential.
3:50>> This is referred to as the carry trade,
3:52and it acts as a massive source of
3:54funding and liquidity for worldwide
3:57markets.
3:58>> That's bad in the long term because
4:00[music] it means capital has been
4:01fleeing Japan now for a long time.
4:03>> The solution is to increase rates, but
4:07it's a balancing act.
4:08>> That means Japan has to raise interest
4:10rates and faster than it's currently
4:12doing, but that carries a lot of risk
4:14for policy makers because if they go too
4:16far too fast, as they've seen in the
4:18past, you can snuff out the economic
4:20growth that is so precious right now.