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The Japanese Yen is Collapsing and Threatening America
The Japanese Yen is Collapsing and Threatening America
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Untertitel (215)
0:00
The Federal Reserve just stopped a global financial meltdown.
0:03
But the root of the crisis wasn’t in Washington. It was thousands of miles away.
0:08
With the Yen in freefall, Japan was standing on the edge on an economic cliff. They needed money…
0:13
fast. But all their wealth was tied up in US debt. And if Tokyo went down, we all went down with it.
0:19
The global economy was playing a multi-trillion dollar game of Russian Roulette.
0:23
And the U.S. had to empty the chamber… While the vast majority of people are trying
0:27
to make ends meet, Wall Street investors and hedge fund managers are looking to expand their wealth.
0:33
Consistently. Because enough is never really enough.
0:36
They found a trick so basic yet so effective, it almost didn’t seem real. A way to game the system.
0:42
A real-world “infinite money glitch.” The Yen Carry Trade.
0:46
In reality, it was little more than a massive macroeconomic heist. The way it worked was simple.
0:52
All traders had to do was borrow Japanese Yen and use it to buy up other assets,
0:56
like US government bonds. They were virtually guaranteed to make a profit in the process.
1:01
Why? Interest rates.
1:03
In the US, the Federal Reserve had made the call to increase interest rates above the 5% mark in
1:08
order to gain some semblance of control over the country’s inflation. That made it very enticing
1:14
to buy up government bonds. No investor is going to say no to a 5% or higher return.
1:20
Over in Japan, it was a different story. The Bank of Japan had been dealing with
1:24
decades of economic stagnation. The real estate and stock market bubble had burst in the early
1:29
1990s and annual growth was practically dead, averaging less than 1%. To make matters worse, the
1:35
country was facing a ticking demographic timebomb. The workforce was rapidly aging and shrinking.
1:40
Japan was struggling to keep its head above water. So, the Bank of Japan made the opposite call to
1:45
America. It kept its interest rates as low as possible, often at zero or even down into
1:51
negative numbers at certain stages. So, you had one country with
1:54
zero interest and another with 5%. When investors hear numbers like those,
2:00
they lick their lips. They’re not really interested in any socioeconomic factors or
2:04
the impacts on the hundreds of millions of people that call these two countries home.
2:08
All they care about is getting richer. A 5% interest gap is too broad to ignore.
2:14
There’s a lot of money to be made in a situation like that.
2:16
So, Wall Street dived right in.. Hedge funds and investment firms
2:20
began borrowing billions of Japanese Yen virtually for free from the Japanese banks.
2:24
They didn’t have to worry about paying any interest on the money they took. They were,
2:28
technically speaking, getting into huge amounts of debt, but it didn’t really matter, since
2:33
holding that debt didn’t cost them a single cent. Once they’d got their hands on vast quantities
2:38
of Yen, they dumped it into the foreign exchange market, snapped up US dollars,
2:43
and used those dollars to purchase high-yield bonds. They were earning money on cash they
2:48
didn’t even own. Printing profit without putting themselves at any real risk. They were, however,
2:54
putting something much larger at risk… The entire global economy.
2:58
Because this is real life. There’s no such thing as infinite money glitches here.
3:02
Every action has a consequence. While Wall Street was making money,
3:06
the Yen Carry Trade was slowly leading both Japan and the US towards a complete catastrophe.
3:11
It might not have mattered all that much if investors had shown some sort of restraint.
3:16
But for investors, “restraint” is a foreign concept.
3:19
They always want more. So they had zero qualms about borrowing billions upon billions of dollars’
3:24
worth of Yen to maximize their returns. They had plugged a siphon straight into
3:29
the heart of the Japanese economy and began draining liquidity directly out of Tokyo,
3:33
and straight into Wall Street. What happened next was inevitable.
3:37
As the market became absolutely saturated with Yen, its value began to drop.
3:42
Then, it nosedived. It fell to unprecedented lows, eventually
3:46
reaching its weakest level against the dollar since 1986. That is a 40 year low for a currency
3:51
belonging to a country widely considered to be one of the most advanced in the entire world.
3:56
That had a serious impact for the Japanese people. While Wall Street got richer, Japanese families
4:01
saw their purchasing power plummet. And alongside it, their hopes for
4:05
brighter and better futures crumbled. This was also one of the key reasons
4:08
behind Japan’s birth rate crisis. The number of new babies being born also reached record lows
4:13
in the 2020s, since so many young couples simply couldn’t afford to bring a child into the world.
4:18
What’s more, as an island nation, Japan is highly dependent on imports. It ships
4:22
in almost all of its energy, as well as around 60% of its food and other resources
4:27
Since these kinds of commodities tend to be priced in US dollars, the weakening Yen
4:32
meant that Tokyo was spending more on everyday essentials, as well as energy. Crude oil, coal,
4:38
LNG, grain, meat, metal, chemicals, it was all becoming more expensive. Everyone was suffering,
4:44
from the Japanese government and the country’s biggest businesses all the way down to the small
4:48
mom and pop stores and ordinary households. The Bank of Japan was forced to watch it all unfold,
4:53
seemingly powerless to stop the slide. Seemingly.
4:57
Because, while many analysts around the globe believed that Japan was running out of road,
5:01
they were wrong. The Bank of Japan ended their negative interest rate policy. Rates increased
5:06
by 10 basis points, rising to 0.0-0.1%. It was a start, but it wasn’t enough.
5:13
The Yen would only continue to lose value. The lower it got, the closer
5:17
Japan came to absolute oblivion. But there was another option.
5:21
One that could change everything. One that hit back at the very people involved
5:24
in exacerbating the crisis. The investors on Wall Street.
5:27
They were still busy borrowing Yen to buy dollars and bonds. So Tokyo decided to do the opposite.
5:33
They would sell off dollars and buy Yen instead. It’s one of the smartest and soundest ways to save
5:39
a collapsing currency: buy up a large amount of it in order to forcefully increase its price.
5:44
But Tokyo would need an enormous amount of liquid cash to carry it off.
5:47
Around $100 billion. That amount of cash pumped right into
5:51
the market and absorbing every last floating Yen in existence would turn the currency’s fortunes
5:56
around instantly. That same surge could also be dramatic enough to force the American hedge funds
6:01
out of the market. Their so-called infinite money glitch would collapse in on itself.
6:06
The only question left was where Japan was going to get $100 billion?
6:11
That money wasn’t simply sitting around in a vault somewhere.
6:14
Countries don’t simply hold onto such astronomic amounts of liquid cash,
6:18
since it doesn’t provide any yields. Instead, what they tend to do is pour their money into the
6:23
safest assets they can find. For Tokyo, there was no safer asset than United States Treasury bonds.
6:28
Over the years, Japan’s investment in bonds had risen to an extraordinary level.
6:33
$1.1 trillion, to be exact. That made Japan the single
6:37
biggest foreign creditor to the United States government, holding more of America’s debt than
6:41
any other country on the planet. And if it chose, it could liquidate a vast chunk of its portfolio,
6:47
pull tens of billions of dollars out of American debt securities, and use it to save itself.
6:52
But every action has a reaction. Especially in finance.
6:56
Japan dumping such a colossal quantity of bonds would be like dropping a bomb on the
7:01
US bank system. It would trigger a shockwave that would extend all across the United States,
7:05
impacting every homeowner, every business, and every consumer in the country.
7:09
It all boils down to the often importance of US Treasury bonds.
7:13
They’re not just instruments for the latest US administration to borrow money. Bonds are,
7:17
in effect, the financial bedrock of the entire American economy. They have real,
7:22
tangible effects for other economies all over the world, as well.
7:25
Interest rates across the globe are directly linked to the values
7:28
and yields of these assets. That includes the rates people pay on their mortgages,
7:33
their credit cards, and their car loans. When demand for bonds goes up,
7:37
their prices rise, but their yields decline as interest rates also drop.
7:42
Conversely, when a huge amount of bond supply hits the market - like when a
7:46
seller unloads a large amount in one go - the price of bonds plummets. But their
7:50
yields start to surge as interest rates rise. So, what would happen if the Bank of Tokyo
7:55
made the call to dump $100 billion of bonds in a last-gasp attempt to
8:00
protect its economy from absolute ruin? Bond prices would have crashed and yields
8:05
would have spiked at rates the world hadn’t seen in generations. Since the bond is so
8:10
closely connected to everything else, the knock-on effects would have been both swift and brutal.
8:15
Mortgage rates, which have already been edging ever closer to record highs in recent times,
8:20
wouldn’t have just risen another 0.1%. They would have risen potentially to 8 or 9%.
8:25
Millions of people would find themselves priced out of the market, unable to live out their dreams
8:29
and afford their own homes. Existing homeowners, meanwhile, would suddenly face far higher
8:34
costs just to pay off their mortgages and face greater challenges if they wanted to refinance.
8:39
The effects would soon spread. Corporate borrowing would become much
8:42
more expensive. Commercial real estate - which is already enduring a difficult period - would
8:47
suffer even more. Car loans and credit cards would also spike, making life instantly more
8:52
expensive for tens of millions of people. Most important of all, the federal government’s own
8:56
interest payments would start to make up an even greater share of national spending.
9:00
All these factors would place the United States on a one-way
9:03
collision course with a dramatic recession. It was the ultimate geopolitical standoff.
9:09
Japan wasn’t just threatening to cash out a financial asset.
9:12
It was holding a loaded gun to the head of the American economy, and it was getting
9:16
closer and closer to pulling the trigger. A complete catastrophe was only days away.
9:21
Tokyo watched its currency continue to slide and realized that there was no other way out.
9:26
But they weren’t the only ones waking up to that reality.
9:29
In the United States, behind closed doors in the Federal Reserve in Washington DC,
9:33
panic also began to set in. Financial experts and Treasury
9:36
tacticians could see the exact same data as their Japanese counterparts. They understood
9:41
all too well that this crisis wasn’t only going to impact a country on the other side of the world.
9:46
It would hit much closer to home. But what could they do?
9:49
The US may have great power on the global stage, but it doesn’t have the authority to
9:53
overrule the economic decisions of other sovereign nations. Especially not major powers and allies,
9:59
like Japan. At the same time, Washington couldn’t allow the dump to go ahead.
10:03
It had to come up with an alternative. A workaround.
10:06
Enter, the Foreign and International Monetary Authorities, or FIMA, Repo Facility.
10:11
It sounds complicated, and, in many ways, it is. But think of it like a pawn shop,
10:15
albeit one operated exclusively by the Federal Reserve for foreign governments.
10:19
This was the get-out both America and Japan needed.
10:23
If Japan cashed in its chips on the open market, the collapse would be colossal. But if it could
10:28
get the same result out of the public eye, the world would be none the wiser. Markets would
10:33
remain intact, interest rates wouldn’t spike, and nobody would need to panic.
10:37
Japan handed over its bonds directly to the Fed in the form of collateral, like how someone would
10:42
hand over a piece of jewelry or artwork, at a pawn shop. It’s an easy way to make some quick cash.
10:48
In return, the Fed gave Japan $100 billion of American cash.
10:53
None of the bonds were actually sold to the public. Thanks to that,
10:56
the public didn’t feel the effects. Working together, the Central Banks
10:59
of the US and Japan had averted a crisis. They’d managed to disarm an economic bomb
11:04
that threatened to destroy the American housing market, and so much more.
11:08
There were no spikes in mortgage rates, no sudden surge in bond yields, no waves of fear spreading
11:13
out across the population. Japan, meanwhile, got its hands on the $100 billion of cold hard cash it
11:18
needed to execute its economy saving operation. Armed with that massive amount of freshly
11:23
minted liquidity, all Tokyo had to do was wait for the ideal moment to inject it.
11:28
A moment when trading volume between foreign exchange markets was relatively low. When
11:32
the hedge funds and investment banks had little liquidity left
11:35
to work with, late in the trading day. That moment came on July 30th, 2026.
11:40
That was when Tokyo made its move. Over $50 billion of the money it
11:44
had taken from the Fed was pumped into the currency markets. The following day, billions
11:48
more rushed in as Japan aggressively bought up every last Yen it could get its hands on.
11:53
Supply was utterly absorbed. Demand began to surge.
11:56
The market hadn’t seen anything like this in years. Analysts watched on with
12:00
a mixture of excitement and anxiety to see what the effects would be.
12:04
The gamble paid off. It had been an expensive and
12:06
complicated affair. But at last, the Yen was going in the right direction after decades of decline.
12:12
It rose up from its grim, 40 year lows of around 162 to the dollar
12:17
to a much healthier rate of around 155. America’s aid didn’t end there, either.
12:22
The US also took the additional step of selling off Euros for Yen,
12:26
the first major Yen purchase since the late 1990s, to help prop up Japan’s economic reconstruction.
12:32
Meanwhile, all those hedge funds and other investors who had been banking on
12:35
the Yen Carry Trade for so long suddenly found themselves waking up to a whole new reality.
12:41
Waves of thousands of automated “stop-loss” orders were instantly triggered as the Yen’s
12:46
price rose. The same people who had been borrowing Yen debt-free for years were
12:50
pushed right out of the market as the cost to repair their loans rose up like never before.
12:55
What had once been a risk-free money-making trick became a frightening liability. This
12:59
also worked in Japan’s favor, as hedge funds scrambled to stem their losses.
13:03
A message had been sent by both the Bank of Japan and the Federal Reserve.
13:07
Neither would allow the other to fail. They were more than willing to let Wall Street
13:11
take the hit if that was what was needed to keep the two countries’ economies alive.
13:15
It had been a tactical success. The Yen had stabilized and
13:19
the bleeding wounds of the Japanese economy had, at last, been patched up.
13:22
The American housing, loan, and credit card markets, too, had managed to escape annihilation.
13:27
The public didn’t even realize how close they’d come to seeing their payments
13:31
spike and their lives get irrevocably worse. It might seem like one of the biggest success
13:36
stories the economic world has ever seen. But there’s another side to this story.
13:41
A way that’s a little harsher, but much more grounded in reality.
13:45
Because once the dust had settled and the Yen had started to regain a little of its former value,
13:50
the absolute absurdity of this entire situation became clear. Yes, the problem had been fixed.
13:55
Temporarily. But the fact that it
13:58
even existed in the first place exposed just how fragile the architecture of our global financial
14:03
system actually is. A wealthy and developed nation was seeing its economy eaten up by
14:09
investors halfway around the world. Its people were suffering.
14:12
Its currency was being cannibalized. It was finding it harder and harder just
14:15
to cover the costs of the bare essentials, despite holding over a trillion dollars’ worth of wealth
14:20
that could, in theory, have fixed everything. All of that cash was tied up in American debt,
14:25
impossible to convert into liquid currency without also causing a gigantic economic crash in the US.
14:31
Japan, the fourth largest economy on Earth, was locked in a hostage situation.
14:36
Then, there was the United States, the biggest economy on Earth,
14:40
on the verge of a dramatic fall of its own. In order to save its housing market and
14:44
its people, it had to negotiate a deal with Tokyo’s Central Bank, essentially absorbing
14:49
around $100 billion of its very own debt. It was a cold, calculated example of
14:54
self-preservation between two economic superpowers desperate to avoid their own respective crises.
15:00
The reality is that Japan and the US weren’t helping each other out of kindness.
15:04
They were both out for themselves. From day one.
15:08
Japan knew it couldn’t afford to crash the American housing market. If America’s economy got
15:13
weaker, then that would damage Japanese exports, as well as the money tied up in US reserves.
15:18
The US, meanwhile, couldn’t afford to let Japan cash out so much money on the open market,
15:23
because its effects would impact hundreds of millions of people.
15:26
The two great powers were left with no other option but to work together..
15:30
Both nations have brought themselves a bit of breathing room, but the core structural
15:33
flaws in their systems haven’t gone anywhere. There’s still a vast chasm between the two
15:38
countries’ interest rates. There’s still a whole lot of American debt that Japan has invested in.
15:43
And there are still hordes of hungry Wall Street investors, like piranhas in a pond, seeking
15:48
out their next “Yen Carry Trade”. They’re still looking for the infinite money trick that could
15:53
get the bomb’s countdown clock ticking once again. The global economy is so intertwined, one wrong
15:58
move can bring it all crashing down. So what would happen if the worst happened.
16:03
Watch “What If The World Dumps US Debt?” to see the terrifying reality. Or click on this.
