Bessent Buys Yen to Shield US Treasuries From Carry-Trade Unwind

Will Japan bring down the world economy? | The Economist — The Economist

The Economist

Rising Japanese interest rates threaten to force liquidations across US Treasuries and tech stocks, but Tokyo's vast foreign reserves and coordinated US intervention make a systemic crash unlikely.

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Key ideas

  • For the first time in nearly three decades, the United States joined Japan in coordinated currency intervention to defend the Japanese yen. (0:00)
  • US Treasury Secretary Scott Bessent intervened by purchasing 5 to 10 billion yen using euros rather than US dollars, theatrically disclosing the plan via a handwritten notepad. (0:00)
  • The Bank of Japan has raised benchmark rates to around 1%, with market consensus projecting further hikes to 1.25%–1.5% as inflation remains above 2% for roughly four years. (3:19)
  • As the largest foreign holder of US Treasuries, an abrupt Japanese repatriation of capital threatens to spike American borrowing costs and destabilize global asset valuations. (4:53)

Detailed notes

## Background Published on YouTube by The Economist on August 19, 2026, this video examines the global economic risks stemming from Japan's severely weakened currency and its massive foreign asset holdings. Following an unprecedented joint currency intervention by the United States and Japan, editors Henry Curr, Josh Roberts, and Ethan Wu explore whether the unwinding of decades of ultra-low Japanese interest rates could trigger an international financial crisis.

## TL;DR After US Treasury Secretary Scott Bessent executed an unusual joint intervention to prop up the historically weak yen, the panel analyzes the systemic dangers of Japan's shifting monetary environment. For decades, rock-bottom domestic interest rates made the yen the premier funding vehicle for the global carry trade, channeling capital into US Treasuries, American tech equities, and Asian markets. However, rising domestic inflation and rate hikes from the Bank of Japan threaten to force a massive, disorderly unwinding of these leveraged positions. While cross-border deleveraging could shock stretched asset valuations and elevate US borrowing costs, the experts conclude that substantial foreign reserves and bilateral policy tools may keep the transition manageable if managed gradually.

## Atmosphere & style The discussion carries the polished, intellectually incisive atmosphere typical of The Economist, pairing rigorous macroeconomic analysis with dry, urbane wit. The dynamic among Henry Curr, Josh Roberts, and Ethan Wu resembles an engaging editorial boardroom debate, where technical breakdowns of financial plumbing are punctuated by sharp observations about political theatricality. Instead of leaning into alarmism, the conversation maintains a measured, pragmatic tension, weighing genuine structural vulnerabilities against the competence of modern central bankers.

## Bulletin - [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) For the first time in nearly three decades, the United States joined Japan in coordinated currency intervention to defend the Japanese yen. - [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) US Treasury Secretary Scott Bessent intervened by purchasing 5 to 10 billion yen using euros rather than US dollars, theatrically disclosing the plan via a handwritten notepad. - [03:19](https://www.youtube.com/watch?v=QBorPsQpEzU&t=199s) The Bank of Japan has raised benchmark rates to around 1%, with market consensus projecting further hikes to 1.25%–1.5% as inflation remains above 2% for roughly four years. - [04:53](https://www.youtube.com/watch?v=QBorPsQpEzU&t=293s) As the largest foreign holder of US Treasuries, an abrupt Japanese repatriation of capital threatens to spike American borrowing costs and destabilize global asset valuations.

## Key takeaways - [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) The United States executed an unprecedented joint currency intervention with Japan to halt the yen's slide to four-decade lows. - [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) US Treasury Secretary Scott Bessent purchased yen using euros, intentionally publicizing the move through a visible handwritten note at a cabinet meeting. - [01:24](https://www.youtube.com/watch?v=QBorPsQpEzU&t=84s) The joint intervention followed a unilateral $73 billion currency intervention by Tokyo in May alongside persistent official jawboning. - [01:24](https://www.youtube.com/watch?v=QBorPsQpEzU&t=84s) A weak yen has shifted from an export advantage to a major political and economic liability, driving up domestic import costs, consumer inflation, and overtourism friction. - [01:24](https://www.youtube.com/watch?v=QBorPsQpEzU&t=84s) Prime Minister Sanae Takaichi, historically a monetary dove, moderated her opposition to interest rate hikes as the currency slump escalated into a political emergency. - [03:19](https://www.youtube.com/watch?v=QBorPsQpEzU&t=199s) According to The Economist's Big Mac index, the yen remains one of the world's most undervalued currencies due to decades of near-zero and negative interest rates. - [03:19](https://www.youtube.com/watch?v=QBorPsQpEzU&t=199s) Ultra-low Japanese interest rates established the yen as the global financial system's primary funding currency for the multi-trillion-dollar carry trade. - [03:19](https://www.youtube.com/watch?v=QBorPsQpEzU&t=199s) Sustained Japanese inflation above 2% has prompted the Bank of Japan to raise policy rates to around 1%, threatening the viability of carry trade spreads. - [04:53](https://www.youtube.com/watch?v=QBorPsQpEzU&t=293s) Japan acts as the largest foreign creditor to the US, meaning forced liquidation of US Treasuries to repatriate cash would directly inflate American borrowing costs. - [04:53](https://www.youtube.com/watch?v=QBorPsQpEzU&t=293s) Decades of cheap yen financing have acted as the 'world's ATM', spilling into US technology equities, broader Asian markets, and global risk assets. - [06:04](https://www.youtube.com/watch?v=QBorPsQpEzU&t=364s) Elevated US equity valuations and fractured cross-border capital flows exacerbate the systemic risk of an abrupt, uncoordinated yen carry trade unwind. - [06:04](https://www.youtube.com/watch?v=QBorPsQpEzU&t=364s) Japan's massive foreign exchange reserves and vast cross-border assets provide substantial ammunition to cushion against a disorderly systemic collapse. - [06:04](https://www.youtube.com/watch?v=QBorPsQpEzU&t=364s) The market tremor of August 2024 demonstrated that while carry trade adjustments spark sharp volatility, core market plumbing remains resilient under coordinated intervention.

## Detailed walkthrough ### [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) Scott Bessent’s Plan to Buy Billions of Yen

Henry Curr opens the discussion by focusing on Japan's outsized influence on the global financial architecture and the recent, unprecedented joint intervention in currency markets. For the first time in roughly three decades, the United States joined Japan in actively defending the Japanese currency. Josh Roberts explains that US Treasury Secretary Scott Bessent intervened aggressively by purchasing substantial amounts of yen to halt its ongoing slide.

Roberts highlights two unusual aspects of this intervention. First, Bessent executed the purchases using euros rather than US dollars. Second, the disclosure was handled with what Roberts jokingly calls "high camp theatricality." The public learned the scale of the operation because Bessent allowed a photographer at a cabinet meeting to snap a picture of his handwritten notepad. The note contained a single line item: *"To do: Buy Japanese yen (JPY) 5 to 10 billion."* As Roberts remarks, the moment was so calculated and performative that "you couldn't get more theatrical unless you kind of paid Patti LuPone to kind of belt it from the rooftops."

[01:24](https://www.youtube.com/watch?v=QBorPsQpEzU&t=84s) Why Does US Intervention Matter?

Ethan Wu emphasizes that the US intervention represents a dramatic escalation of defense efforts that Japan had already been conducting largely on its own. The joint move followed a massive $73 billion unilateral intervention executed by Tokyo in May, alongside persistent attempts by Japanese finance officials to jawbone markets into stabilizing the exchange rate.

Wu points out that the domestic economic calculus around a weak currency has reversed fundamentally. Historically, a weak yen was celebrated in Tokyo because it enhanced export competitiveness for major Japanese multinationals. Today, it has become an acute political and economic liability. A slumping currency inflates import costs, pinches ordinary household consumption, fuels domestic inflation above the Bank of Japan's 2% target, and spurs severe backlash over "overtourism." Even Sanae Takaichi, the Prime Minister of Japan and a longtime monetary dove who once dismissed interest rate hikes as "stupid," has had to moderate her tone as the currency slide deteriorated into a political emergency. For the United States and the broader world, stability matters because Japan's financial plumbing is deeply interwoven with global capital, most notably through the US Treasury market.

[03:19](https://www.youtube.com/watch?v=QBorPsQpEzU&t=199s) Why the Yen Is Weak and the Mechanics of the Carry Trade

Curr notes that according to *The Economist*'s Big Mac index, the yen stands as one of the most undervalued currencies in the world, trading far below levels implied by fundamental purchasing power. This persistent undervaluation stems from decades of rock-bottom domestic interest rates. Facing protracted deflation and sluggish growth, the Bank of Japan anchored interest rates near zero or in negative territory (-0.1%), turning the currency into the premier funding vehicle for global capital.

```mermaid flowchart LR accTitle: The Yen Carry Trade Mechanism accDescr: Flow diagram showing how investors borrow cheap yen to invest in higher-yielding overseas assets.

subgraph Funding["1. Funding Source"] BOJ["Bank of Japan<br/>(Historical: -0.1% / Current: ~1%)"] Borrow["Borrow cheap Japanese Yen"] BOJ --> Borrow end

subgraph Allocation["2. Global Reallocation"] Invest["Invest in High-Yield Assets Overseas"] Borrow -->|"Convert & Deploy"| Invest end

subgraph Targets["3. Target Assets"] UST["US Treasuries"] Tech["US Tech Equities"] Asian["Global & Asian Equities"] Invest --> UST Invest --> Tech Invest --> Asian end ```

Investors borrow cheaply in yen to finance investments in higher-yielding assets abroad, pocketing the spread in a maneuver known as the yen carry trade. However, that dynamic is shifting rapidly: - Japanese headline inflation has now remained above 2% for approximately four years. - The Bank of Japan has exited negative rates, pushing the policy benchmark to around 1%. - Market consensus anticipates further rate hikes toward 1.25% to 1.5% later in the year. - As domestic borrowing costs rise, the economic foundation of this multi-trillion-dollar carry trade threatens to unravel.

[04:53](https://www.youtube.com/watch?v=QBorPsQpEzU&t=293s) Why America Should Be Worried About Japan

Josh Roberts explains why US officials, including Scott Bessent, have legitimate reason to intervene. Japan is the single largest foreign creditor to the United States and the biggest overseas holder of US Treasuries. If Japanese investors or institutions are forced to liquidate Treasury holdings to repatriate cash, US yields would spike, directly inflating American borrowing costs.

Beyond Treasuries, market participants have long treated Japan as the "world's ATM." Cheap yen credit has not only financed sovereign bond purchases, but has also poured into Japanese equities, broader Asian markets, and high-flying US tech stocks. If rate hikes raise the cost of servicing yen-denominated debt, forced deleveraging could trigger broad, correlated sell-offs across major global asset classes.

[06:04](https://www.youtube.com/watch?v=QBorPsQpEzU&t=364s) Will Japan Bring Down the Global Financial System?

Turning to the central question—whether Japan could trigger a global financial crash—Roberts acknowledges that without an orderly, gradual unwinding, the risks are substantial. The global financial system already suffers from severe structural vulnerabilities: - Stretched equity valuations, particularly in US tech stocks, leave markets exposed to deep drawdowns, sitting at valuations far higher than during the market tremor two summers earlier (referencing the market volatility of August 2024). - Cross-border capital flows are already fragmenting inward along geopolitical fault lines, which could accelerate unpredictably if a funding shock occurs. - The optimistic path involves a slow, quiet reduction of Japan's consolidated overseas balance sheet positions across successive mild episodes until the systemic leverage dissipates.

Wu offers a more counterbalancing, reassuring perspective. He argues that while the scale of the position is intimidating, modern authorities possess powerful tools to combat crises: - The Japanese government maintains an enormous stock of foreign exchange reserves and vast cross-border asset holdings that can be monetized or redeployed to cushion the currency. - When carry trades suffered an abrupt tremor in August 2024, significant market volatility ensued, but core market plumbing did not break, proving it was a manageable stress test rather than a repeat of the 2008 Global Financial Crisis or the pandemic crash. - Coordinated support between Tokyo and Washington provides a strong backstop.

Wu tempers his optimism with a historical caveat: while people in the late 1980s were similarly complacent before Japan's massive asset bubble burst, sovereign authorities still retain deep competence in firefighting acute panics, "even if they're not always good at making good decisions when things aren't in crisis."

## Notable quotes > [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) To do: Buy Japanese yen (JPY) 5 to 10 billion. — Scott Bessent

> [00:00](https://www.youtube.com/watch?v=QBorPsQpEzU&t=0s) you couldn't get more theatrical unless you kind of paid Patti LuPone to kind of belt it from the rooftops. — Josh Roberts

> [01:24](https://www.youtube.com/watch?v=QBorPsQpEzU&t=84s) stupid — Sanae Takaichi

> [04:53](https://www.youtube.com/watch?v=QBorPsQpEzU&t=293s) world's ATM — Josh Roberts

> [06:04](https://www.youtube.com/watch?v=QBorPsQpEzU&t=364s) even if they're not always good at making good decisions when things aren't in crisis. — Ethan Wu

## Mentioned Henry Curr, Josh Roberts, Ethan Wu, Scott Bessent, Sanae Takaichi, Patti LuPone, Bank of Japan, US Treasury, The Economist, Big Mac index

## Video description Japan’s yen recently hit its lowest level in four decades. America swooped in to help stabilise the currency, but the intervention brought only a temporary reprieve.

Japan’s vast hoard of financial assets means that problems in its economy can reverberate across the globe. Could Japan trigger a global financial crisis? Henry Curr, Josh Roberts and Ethan Wu, three of The Economist’s economics and markets experts, will consider what Japan’s predicament means for the world.

#japan #markets #finance #usa #economy

00:00 - Scott Bessent’s plan to buy billions of yen 01:24 - Why does US intervention matter? 03:19 - Why is the yen so weak? 03:56 - The yen carry trade, explained 04:53 - Why America should be worried about Japan 06:04 - Will Japan bring down the global financial system?

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[Source](https://www.youtube.com/watch?v=QBorPsQpEzU)

中文简报

贝森特购入日元以防美债受套息交易平仓冲击 日本利率上升可能迫使美债和科技股面临平仓抛售，但东京庞大的外汇储备以及美方的协调干预，使系统性崩盘不太可能发生。 在美国财政部长Scott Bessent采取罕见的联合干预举措以支撑处于历史低位的日元后，专家小组分析了日本货币环境转变所带来的系统性风险。数十年来，日本极低的国内利率使日元成为全球套息交易的首要融资工具，推动资金持续流向美国国债、美国科技股及亚洲市场。然而，日本国内通胀走高以及日本央行的加息举措，可能迫使这些杠杆头寸发生大规模且无序的平仓。尽管跨境去杠杆化可能会冲击高企的资产估值并推高美国借贷成本，但专家们认为，只要循序渐进地推进，庞大的外汇储备与双边政策工具有望使这一过渡保持在可控范围内。 近三十年来，美国首次与日本联手实施协调汇市干预以捍卫日元。 (0:00) 美国财政部长Scott Bessent动用欧元而非美元买入50亿至100亿日元进行干预，并通过手写笔记本戏剧性地公开了该计划。 (0:00) 日本央行已将基准利率上调至1%左右，鉴于通胀率在约四年间持续高于2%，市场普遍预期利率将进一步升至1.25%–1.5%。 (3:19) 作为美债最大的海外持有国，日本资本若突然回流，可能导致美国借贷成本飙升并动摇全球资产估值。 (4:53)

Reading summary

The United States and Japan have launched a rare joint currency intervention to halt the yen's slide, driven by fears that an abrupt unwinding of Japan's multi-trillion-dollar carry trade could destabilize global asset markets and spike US borrowing costs. While analysts debate whether the transition will trigger widespread financial disruption, significant foreign exchange reserves and bilateral coordination provide key buffers against a systemic crash. Unprecedented Joint Currency Intervention (0:00) In a historic shift marking the first such cooperation in roughly three decades, the United States joined Japan to actively support the yen. US Treasury Secretary Scott Bessent purchased yen using euros rather than US dollars, a maneuver disclosed through a photographed handwritten notepad outlining plans to buy between 5 billion and 10 billion yen. This coordinated action followed a massive $73 billion unilateral intervention by Tokyo in May, as Japanese authorities struggled to stabilize exchange rates through verbal intervention alone. Ethan Wu emphasizes that the domestic economic calculus in Tokyo has reversed. Although a weak yen historically benefited Japanese exporters, it has become an acute liability by inflating import costs, suppressing household consumption, keeping domestic inflation above the Bank of Japan's 2% target, and sparking domestic backlash over overtourism. The pressure has even compelled dovish political figures, such as Prime Minister Sanae Takaichi, to soften previous opposition to interest rate hikes. The Shifting Foundations of the Carry Trade (3:19) According to The Economist's Big Mac index, the yen stands as one of the world's most undervalued currencies, distorted by decades of ultra-loose monetary policy. By keeping interest rates at zero or negative territory (-0.1%), the Bank of Japan established the yen as the premier global funding currency for the carry trade, in which investors borrowed cheaply in Japan to deploy capital into higher-yielding assets abroad. This funding model is now threatened by shifting domestic macroeconomics. Japanese inflation has remained above 2% for approximately four years, leading the central bank to abandon negative interest rates and lift the policy benchmark to around 1%. With market consensus anticipating further rate increases toward 1.25% to 1.5% later in the year, rising domestic financing costs threaten to erase the interest rate spreads that underpinned global carry trades. Global Exposure to Japanese Capital Flows (4:53) Josh Roberts notes that US officials are deeply invested in the yen's trajectory because Japan is the single largest foreign creditor to the United States and the biggest foreign holder of US Treasuries. If Japanese investors are forced to repatriate funds and liquidate their Treasury holdings to service domestic liabilities, US sovereign bond yields would jump, immediately increasing domestic borrowing costs. Beyond sovereign debt, global markets have long treated Japan as the "world's ATM." Cheap yen loans have flowed heavily into Japanese equities, broader Asian markets, and high-valuation US technology stocks. A sharp rise in the cost of servicing yen-denominated debt creates the danger of forced deleveraging, which could trigger correlated sell-offs across major international asset classes. Assessing Systemic Vulnerability Against Policy Buffers (6:04) Opinions diverge on whether Japan's policy shift could spark a global financial crisis. Roberts warns that financial markets are vulnerable due to stretched equity valuations in US tech—higher than levels seen prior to the market tremor of August 2024—and capital flows that are fragmenting along geopolitical lines. An orderly outcome, in his view, relies on a gradual, quiet reduction of overseas positions across multiple mild episodes. Wu presents a more reassuring outlook, arguing that sovereign authorities retain extensive firefighting capabilities. Japan maintains massive foreign exchange reserves and overseas assets that can absorb market volatility. Furthermore, the resilience of market infrastructure during the August 2024 volatility suggests that carry-trade shocks can be absorbed without sparking a systemic collapse on the scale of 2008, despite historical warnings regarding complacency before Japan's late-1980s bubble burst. Whether the unwinding of Japan's monetary stance creates severe global contagion depends on the pace of interest rate adjustments and capital repatriation. Although Japan's massive reserves and US coordination offer strong defense mechanisms, extended valuations in global equities and US Treasuries remain exposed to any disorderly withdrawal of cheap yen liquidity.

Source quotes

[0:00] Scott Bessent: To do: Buy Japanese yen (JPY) 5 to 10 billion. [0:00] Josh Roberts: you couldn't get more theatrical unless you kind of paid Patti LuPone to kind of belt it from the rooftops. [1:24] Sanae Takaichi: stupid [4:53] Josh Roberts: world's ATM [6:04] Ethan Wu: even if they're not always good at making good decisions when things aren't in crisis.

Original transcript

[0:00] We're talking Japan and its influence on the  world economy. Let's start by unpacking what has [0:06] actually happened here. So the the recent event is  the intervention in the currency market by Japan [0:12] uh but more notably by America too. The first  uh uh such intervention in about three decades. [0:20] Uh Josh, could you explain what's happened? Yeah.  So, Scott Bessant, the US Treasury Secretary, [0:24] has basically bought an awful lot of yen in order  to to prop up its value to try and stop it from [0:30] weakening. Um, there are a couple of unusual  things about this. One is that he used euros [0:36] rather than dollars to buy the yen. The other  is the way we know how much yen he bought, which [0:41] there's there's a lot about this administration  that we sometimes kind of criticize. One thing [0:45] I adore is the kind of high camp theatricality.  And it's it's just a very theatrical way that we [0:51] know. We know tha he's bought five to10 billion  dollars worth of yen because he allowed a [0:56] photographer to take a picture of his notepad at  a cabinet meeting. Uh and the notepad says to do [1:05] um buy Japanese yen brackets JPY in case anybody  missed it. That's the that's the symbol for the [1:11] Japanese yen. 5 to10 billion. That's the only  thing on the to-do list. Buy Japanese yen. [1:16] Five to10 billion dollars. That's all. I mean,  like, you couldn't get more theatrical unless [1:21] you kind of paid Patty Leone to kind of belt  it from the rooftops. And this has been a [1:26] ongoing battle for the Japanese uh uh government,  which uh as I said, America's intervention [1:32] was was was new, but Japan has been defending uh  its currency for a while now. So Ethan, in the [1:39] context of that, how much did this intervention  matter, do you think? Yeah, it's a good question, [1:44] Henry. And I mean, I think it's worth saying  from the Japanese perspective, this is an [1:48] intensification of efforts that had already been  underway. Uh came on the back of a $73 billion [1:54] unilateral intervention just by the Japanese  governments in May and repeated efforts by the [2:00] finance minister and other officials in Japan  to job the market, to get the yen to cooperate. [2:04] You know, it used to be that a weekend was  considered a good thing for the Japanese economy. [2:08] It boosted exports. Japan has a lot of very  strong multinationals where weekend, you know, [2:13] improves their competitiveness abroad. But now  it's it's seen as as really a problem for them. It [2:19] pushes up import costs. It's seen as feeding  into, you know, above 2% inflation in Japan. [2:24] It's pinching uh, you know, consumers and it's  leading to issues with over tourism, which has [2:29] become a political issue for the government. So  I you know I think the politics here are are are [2:35] shifting and you're you're seeing that in the way  that the government is responding to yen weakness. [2:40] Uh you know Takaichi Sanae the prime minister of  Japan is a longtime skeptic of higher interest [2:46] rates. Uh you know she before becoming prime  minister said that rate hikes were stupid [2:52] is the word she chose to use. And her tune has  since changed on interest rate hikes as the yen [2:58] has become more of an issue. That's why it  matters in the Japanese context. For America, [3:04] I think it matters because of the interactions  between Japan and the US Treasury market, [3:08] which I know we'll talk more about later in the  show. And then just more broadly for the world, [3:13] for global financial markets, it matters because  of the deep linkages between what happens in Japan [3:18] and the rest of the world. I think step one is  saying, why is the yen so weak? And anyone who [3:25] watched or read our coverage of our Big Mac index  anniversary and and refresh a few weeks back will [3:31] remember that Japan is one of the most undervalued  currencies according to the Big Mac index. So [3:39] that that currency is weak. It's weak in defiance  of fundamentals and that's essentially because [3:46] interest rates in Japan have been so low for  so long and that's what has made the economy [3:51] stand out. And of course, if you're an investor,  you want to hold a currency where interest rates [3:55] are higher. That's right. I mean, Japan for  a long time has had deflation as its primary [4:00] economic issue. Low growth, uh, low inflation,  occasionally negative inflation. And what that's [4:06] meant is when you have those sort of economic  conditions, you need lower interest rates. [4:10] So, from an in from an investor perspective,  that makes it a very attractive funding currency. [4:15] In other words, you'd like to borrow if there's  low interest rates in a country. That lets you [4:20] take that borrowed money from Japan, finance at a  low interest rate and invest it somewhere across [4:24] borders and pick up uh the difference. So that  that has been a long-standing feature of global [4:30] financial markets. The question now is, you know,  Japan used to have negative0.1% interest rates, [4:35] but that's changed. Inflation's back. It's been  above 2% for something like four years now, [4:40] and interest rates are rising. They're  now at about 1%. The expectation is that [4:44] the Bank of Japan, the central bank, will hike  again to 1.25% to 5% sometime later this year. [4:49] So is that going to destabilize this this this  so-called carry trade? And essentially the issue [4:54] is that this has happened on a massive scale the  borrowing in in in yen to hold higher yielding [5:01] assets overseas not least US treasuries and  this chart shows that Japan is indeed the [5:08] biggest holder of US uh US treasuries. So this is  happening on a on a large scale right Josh? Right. [5:15] Exactly. And that's why Scott Bessant does need to  be worried about Japan. They are such a big holder [5:20] of treasuries. If something goes wrong, they start  to dump their Treasury holdings that would send [5:24] US borrowing costs up. But it's not just that.  Traders call Japan the world's ATM. As Ethan said, [5:30] it's s it's such a low yielding currency that  you can easily borrow in it and buy other assets. [5:35] And that goes well beyond treasuries, right? That  goes to [ __ ] Japanese stocks, that goes to other [5:40] Asian stocks, that even goes to US tech stocks.  So if we start to see this carry trade unwind, if [5:46] we start to see, you know, interest rates go up,  it becomes more expensive to borrow in the yen, [5:51] um it's not so attractive to use that as your  funding currency anymore. You can see selloffs [5:57] across the world. And that's why we're asking, you  know, can Japan break the financial system because [6:02] it's such an important part of it. Okay, so that  brings us on to the big question. Will Japan bring [6:07] down the global financial system? Well, if  it doesn't manage the dream scenario where it [6:11] just gradually kind of unwinds its its big carry  trade, it could do. And the worrying thing is that [6:21] we have a financial system that already has points  of fragility that have nothing to do with Japan. [6:26] We have talked to death about how uh how high  stock market valuations are, how vulnerable they [6:32] are to a crash. two summers ago, you know, when  when part of the carry trade was unwinding, you [6:37] know, but this is this is tech stocks um falling  from a very high level. They have much further [6:42] to fall. They're much more highly valued now than  they were two summers ago. So, that's a point of [6:46] vulnerability. You have this kind of inward turn  already happening within countries, you know, [6:52] uh crossber capital flows reorienting themselves  along geopolitical lines. This could be one of [6:57] those kind of catalysts that that that really  accelerates that. And you can't really predict [7:03] if you have kind of this inward turn. You can't  really predict what shape the financial system [7:07] takes after that. So yes, I worry that it  could bring down the the financial system. [7:13] I do hold out hope though that we just get  repeated episodes like over the past few weeks. [7:19] This big point of vulnerability, the um the  the the essentially the Japanese government's [7:25] consolidated position winds down and down and  down and then eventually we don't have it anymore. [7:30] And that's maybe one problem less for for  the world to worry about. Let me give the [7:34] more optimistic take here, which is that I  I think even though the position is scary, [7:39] I think governments are pretty good at crisis  fighting generally speaking. And I think Japan [7:43] has a lot of levers to pull if something, you  know, started to turn pear-shaped quite quickly. [7:49] I I mean the asset side of the balance sheet enory  is one of those levers. A lot of those assets, [7:54] you know, could be unwound, could be monetized  uh if need be. there is a really significant [7:59] stock of foreign reserves to defend the currency  if they needed to. Uh the August 2024 episode [8:04] though it created this volatility. Nothing really  broke. This was not a GFC or or a pandemic-style [8:11] scenario. It was a warning signal but nothing  you know absolutely dire. And so I I I think with [8:18] the leverage the government has to pull, the  funds available to its disposal and coordination [8:22] with uh you know its friends in America, I think  a crisis situation probably could be averted. [8:28] But uh you know that's probably what people would  have said in the 80s before the the the gigantic [8:33] bubble burst in Japan. But um I I I think I have  faith that governments tend to be good at crisis [8:38] fighting even if they're not always good at making  good decisions when things aren't in crisis.