Rarely has Washington proved so willing as it has in the last couple of years to intervene across the board in the markets to assert, where necessary, the interests of the federal government, US companies or the president himself.
This has taken many forms: tariffs (whether overturned or not), interventions in the foreign exchange market, acquisitions of stakes in private companies, doubts about the Fed’s independence and even the monetisation of the role of the president. According to Forbes, for example, Donald Trump has tripled his personal fortune to some $6.5bn (£4.8bn) since taking office at the start of 2025.
On the monetary front, the US Treasury intervened in the yen market in late July – the first time in nearly 30 years that Tokyo and Washington have joined forces to prop up the Japanese currency through direct purchases. According to estimates, Japan is thought to have spent $52.8bn. The exact amount contributed by the US has not been made public but a photograph showing a handwritten note from the Secretary of the Treasury, Scott Bessent, suggests a figure in the range of $5bn to $10bn.
In Japan, the situation is even more precarious. Yields on long-term Japanese government bonds have reached record highs, while two-year and 10-year yields have hit their highest levels in 30 years. After decades of interest rates close to zero, the Bank of Japan is raising them at a fairly slow pace.
“Long portrayed as the arbiter of a system based on independent institutions and free markets, Washington now seems intent on a more direct role in financial mechanisms.
Japan disposing off its US treasuries holdings is a scenario feared in Washington as any massive sell-off could exert further upward pressure on yields.”
Its nominal policy rate of 1% is deeply negative in real terms and remains one of the lowest in the world. While prime minister Sanae Takaichi has unveiled a costly investment plan, the Bank of Japan must keep interest rates under control to prevent the country’s enormous public debt from spiralling into a crisis.
To combat the weakness of its currency – which hit a 40-year low of 164 yen to the dollar – Japan could have sold off large quantities of its US treasuries, of which it is the largest holder, with $1,153.93bn. This is a scenario feared in Washington as any massive sell-off could exert further upward pressure on yields.
This would be in no one’s interest, least of all president Trump and Bessent, whose sensitivity to 10-year bond yields whenever they exceed 5% is well known. This is all the more true as the mid-term elections are fast approaching and the conflict in the Middle East continues to have an impact on inflation.
This purchase of yen also comes less than a year after Bessent helped to stabilise the Argentine peso ahead of high-stakes mid-term elections for Javier Milei, a staunch political ally of the Trump administration. These interventions in the Argentine peso and the yen could mark a new era of US activism in the foreign exchange markets.
Fed’s decisive role
The Fed’s role will be decisive in the coming months. Investors are anticipating high and prolonged inflation if the Fed continues to resist raising its key interest rates. After maintaining the status quo at the press conference after the Fed’s July meeting, Kevin Warsh suggested rate rises “might well be part” of the solution to bring inflation down.
The Fed chair did not, however, explain how he intended to go about it, which is causing concern in the markets. Caught between economic reality and president Trump’s pressing demands, Warsh will have to navigate a rather perilous tightrope.
An example not to be followed is that of Arthur Burns, who was appointed chairman of the Fed by Richard Nixon in 1970. Recordings later revealed a telephone conversation in which Burns boasted of putting pressure on his colleagues to cut interest rates. Nixon was re-elected in a landslide but inflation subsequently soared.
It is also worth noting the federal government’s stake in around 30 companies, including Intel, of which it has become the largest shareholder.”
Relations between the two institutions were permanently altered as a result – the separation being intended to prevent the White House from influencing monetary decisions that determine borrowing costs for the economy as a whole.
The Burns case echoes an article in the Wall Street Journal reporting the current president has called Warsh on several occasions since appointing him to his post at the end of May. He is said to have sought his advice on various subjects – notably the impact of the war in Iran and the rapid rise of AI on the economy. It is not known, however, whether monetary policy was discussed.
The growing number of signs of economic activism may be shaping the contours of a new US doctrine. Long portrayed as the arbiter of a system based on independent institutions and free markets, Washington now seems intent on a more direct role in financial mechanisms where these affect its strategic, economic or political priorities.
On this point, it is also worth noting the federal government’s stake in around 30 companies, including Intel, of which it has become the largest shareholder. It remains to be seen whether this shift will serve to strengthen the stability and power of the US or whether it will ultimately erode investor confidence in the institutions that have long been the strength of the American model.
Grégoire Kounowski is head of advisory at Norman K
