The "overlooked" big market event: the joint intervention of the U.S., Japan, and South Korea, and the "rare" involvement of the U.S. Treasury! Is Besant quietly "saving the market"?

This week, the United States, Japan, and South Korea jointly initiated the largest coordinated foreign exchange intervention in nearly three decades. This action targets not only the depreciation pressures on the Japanese yen and South Korean won but is also seen as an important measure by the U.S. to stabilize financial markets for its Japanese and South Korean allies and prevent risk spillover. The intervention covers the two major Asian currencies: the yen and the won. The foreign exchange authorities of Japan and South Korea sold U.S. dollars to support their respective currencies; meanwhile, the U.S. intervened in the yen's exchange rate through non-dollar channels, selling euros and buying yen to ease the depreciation pressure on the yen and prevent strain on the dollar. Currently, the markets in Japan and South Korea are under significant pressure: the South Korean KOSDAQ index has fallen to its lowest point since October 2022, and the technology sector is experiencing clear adjustments. The exchange rates of the yen and won against the dollar have also continued to weaken, raising concerns that further depreciation of these currencies could trigger a chain reaction in financial markets like that seen with ACR HOLDINGS. Unlike past measures aimed solely at stabilizing the exchange rate, this coordinated effort is viewed by the market as a "market rescue" operation targeting the financial markets of Japan and South Korea. With the equity markets of Japan and South Korea facing ongoing pressure and the technology sector undergoing substantial adjustments, the U.S. hopes to stabilize exchange rate expectations and boost market confidence to prevent further risk transmission. Japan and South Korea are both important participants in the U.S. semiconductor and AI supply chains, and stabilizing the asset markets in these countries helps mitigate the potential transmission of financial risks to the technology industry and markets in the U.S. In a rare joint intervention in the foreign exchange market, the yen and won surged in response. According to the Financial Times, on July 31, the U.S. Treasury Department authorized Goldman Sachs and Morgan Stanley to sell euros and buy yen through the New York Federal Reserve, marking the first direct U.S. participation in yen intervention in nearly 30 years. Previously, it was reported that on July 30, Japanese authorities utilized approximately 8.45 trillion yen (about 52.8 billion dollars) for foreign exchange market interventions in a single day. Additionally, Reuters reported that South Korean foreign exchange authorities also unusually entered the market to sell U.S. dollars on the same day, leading to a 2% appreciation of the won, reaching a nine-month high. With the joint efforts, the dollar fell rapidly from above 162 yen to a range of 157-159 yen, with the yen significantly recovering from its 40-year lows. South Korea's Vice Finance Minister Moon Ji-sung stated that South Korea is closely coordinating with the U.S. and Japan; Japans Deputy Minister for International Affairs at the Ministry of Finance, Atsushi Mimura, also mentioned that U.S. support has "gone beyond mere moral support." The U.S. Treasury's direct participation in yen intervention is the most noteworthy change in the market. Unlike previous reliance on verbal warnings, the U.S. has rarely engaged in yen intervention through actual transactions. According to the Financial Times, citing informed sources, the New York Federal Reserve conducted the intervention by selling euros and buying yen through Goldman Sachs and Morgan Stanley. Prior to the action, the U.S. Treasury had signaled to several Wall Street firms the possibility of intervention and maintained communication with the European Central Bank. Before officially entering the market, the New York Federal Reserve had been issuing policy signals for two consecutive days. On Thursday, it conducted a "rate check" for the dollar-yen pair, inquiring traders about the currently tradable exchange rate without immediate execution; on Friday, it shifted to a "rate check" for the euro-yen pair. The market generally viewed this operation as a precursor to formal intervention. The New York Federal Reserve's "rate check" operation explores new methods of exchange rate intervention. Alex Cohen, a foreign exchange strategist at Bank of America, mentioned in a report that the "rate check" sits between oral intervention and actual intervention, serving as a new tool that the U.S. Treasury has begun using this year to release policy signals to the market without actually deploying funds. However, he also cautioned that without further actual actions to support it, the market may still test the credibility of the authorities' policies. Notably, the New York Federal Reserve chose to operate in the euro-yen pair this time rather than the dollar-yen, suggesting that the U.S. might want to exert influence through non-dollar currency channels while alleviating depreciation pressure on the yen and avoiding additional strain on the dollar. Japan had already intervened significantly in the foreign exchange market. According to official data and market estimates, Japanese authorities utilized approximately 8.45 trillion yen (around 52.8 billion dollars) on July 30 to support the yen, marking another large-scale intervention following approximately 11.7 trillion yen spent between April and May of this year. The U.S. goal is not merely to stabilize the exchange rate, but to maintain the stability of assets belonging to its AI allies. The significance of the U.S. intervention may extend beyond traditional currency interventions. Michael Hartnett, a strategist at Bank of America, stated in a recent report that the coordinated action of the U.S., Japan, and South Korea is akin to a "Price Keeping Operation" (PKO) of the AI era, with the core objective of preventing continued pressure on the assets of AI industry allies such as Japan and South Korea. Hartnett believes that the U.S. aims to reduce three types of risks: first, to prevent rapid yen depreciation from drastically pushing up Japanese government bond yields; second, to avoid spreading financial pressure to Asian markets like South Korea and Japan; third, to minimize the impact of disorderly capital flows on the U.S. bond market. Recently, pressure on the South Korean market has noticeably increased. The KOSDAQ index has fallen to its lowest point since October 2022, and shares of major South Korean brokerages have continued to adjust. Meanwhile, the investment craze in AI has not shown any significant signs of cooling. According to Bank of America data, the semiconductor ETF has attracted around 53 billion dollars in inflows so far this year; despite a recent decline in the Philadelphia Semiconductor Index (SOX), investors continue to bet on the long-term growth of the AI industry chain. Hartnett suggests that the timing of the coordinated intervention appearing alongside market adjustments may indicate that prior high-leverage trading is nearing its end. However, current policies seem aimed more at controlling market volatility rather than changing the trend through liquidity policies. This article is sourced from "Wall Street Journal," authored by Li Jia, and edited by Chen Qiuda from GMTEight.