🇺🇸 THE FED IS SIGNALING AN INTERVENTION IN THE YEN ONCE AGAIN, LIKE IN 1985. LAST TIME, THIS CAUSED THE DOLLAR TO FALL BY ALMOST 50%.
In 1985, the US dollar had strengthened too much. US factories were losing business volume, exports were collapsing, and trade deficits were skyrocketing. Congress was about to impose heavy tariffs on Japan and Europe.
So the United States, Japan, Germany, France, and the United Kingdom met at the Plaza Hotel in New York and reached an agreement. They agreed to deliberately weaken the dollar by selling dollars directly and jointly buying other currencies. That was the Plaza Agreement, and it worked.
Over the next 3 years:
- The dollar index fell by almost 50%.
- The USD/JPY dropped from 260 to 120.
- The yen doubled in value.
This was one of the largest monetary adjustments in modern history. Because when governments coordinate their currency policies, markets do not oppose them. They follow. That decision changed everything.
A weaker dollar boosted:
- The #oro rises
- Commodities up
- Non-US markets rise
- Asset prices rise in dollars
Now let's look at today.
The United States still has a large trade deficit. Monetary imbalances are at their highest level. Japan is once again at the center of tension. And the yen is extremely weak again. That is why Plaza Agreement 2.0 is being discussed.
Last week, the Federal Reserve Bank of New York checked the interest rates of USD/JPY, the same measure it took before the currency intervention. This indicates the willingness to sell dollars and buy yen, like in 1985.
There has not yet been any intervention. But the markets have moved anyway. Because they remember what Plaza means.
If that starts again, all dollar-denominated assets will soar.
