By François Rimeu, Senior strategist, Crédit Mutuel Asset Management

In our opinion, the primary reason for the US Treasury’s intervention was not to lift an undervalued currency. In the era of fiscal dominance we entered post-Covid, a key risk for indebted developed economies is losing control of the long end of the curve, which explains the US move. A weaker yen fuels inflationary pressures and pushes up Japanese yields, a tension that spreads to other markets. After years of investing abroad in search of yield, Japanese institutions can finally find equivalent returns at home. US Treasuries (like French bonds), heavily bought by Japanese investors for 30 years, are losing one of their main buyers. This poses a major problem for the US Treasury, and this is likely not the last intervention we will witness. Regarding the yen, this does not alter our positioning: we have been skeptical for several months that the currency would continue to decline, and we remain neutral.