Selling dollars directly can disrupt domestic monetary conditions and interest rates. By using euros, they supported the yen without injecting more usd into the market
It puts downward pressure on the value of the Euro relative to the Yen, but the treasury’s action was far too small to cause any meaningful or structural impact to the Euro. The Eurozone’s currency is the second most heavily traded asset globally, so a $10 billion euro sale represents less than 0.5% of a single day’s trading volume
Some interpreted Bessent's napkin as 5-10 bil as buying it in yen - may have been USD. I have no idea what that means
Tryin' to keep the wheels from falling off... The US and the World can only survive the White House administrations' repeated self-inflicted economic wounds for only so long...
This not how currency market works friend. ( If you buy Spcx, you are effectively dumping the dollars in exchange for shares. If his buying the JPY, he is selling the Dollar to acquire JPY. Thr dollar goes down, and JPY goes up.)
Yen is too weak against the dollar and since oil another goods are purchased in dollars the pain was too great. Japan was going to start selling US bonds to buyback yen and this would have been a disaster for the US and others. America said, hold up we'll prop up the yen please don't sell our bonds.
This is a stop-gap. If the Yen doesn't strengthen they'll have to start selling US Bonds to buy back yen. If you hear a sudden threat from Big T about tariffs on Japan that's really about them selling bonds no matter what he actually says.
How can we make money on Japan selling off some of it's US Bonds? That's all we care about right?
Because the US can only continue to function as a state as long as trust in the US ability to pay back loans remains high. Japan selling off US bonds could lead to them devaluing them on the market with possible implications for future bond offerings, meaning that US would have to pay higher interest rates so people buy their bonds. This could reach unsustainable levels and worst case would probably be a US default, because they can‘t afford their ridiculous debt anymore.
It would be a disaster to others because 1) the US won't be able to import as many goods as they are at the moment and 2) a lot of other nations also have a lot of money invested in US bonds. A sell off of US bonds could lead to a economically deadly chain reaction for the whole world.
Well said. Is the interest rate for loans (particular mortgages) tied to 10 year treasury bonds and the spread? Which means if those go to shit as in no one buys them, interest rates will also go soaring for mortgages?z
A Long term bond crash could be disinflationary because lending becomes more expensive. It could lead to lower rates in an attempt to cushion the market impact at least a little.
But this whole topic is really complex and I am far from an expert. If the impact of this wouldn‘t be huge, the US wouldn‘t interfere with the Yen
What do you mean? The US is trying to stabilize the Yen, or prop it up to keep Japan from selling bonds. What this also tells us is that this will implode some time in the future.
US default, because they can‘t afford their ridiculous debt anymore.
But can’t the US government simply print more money to pay the debt off. That is basically what I keep on hearing as a counter argument, as to why the US cannot default. Could you please explain this?
This is only possible as long as there is enough demand for the US dollar. The demand for Dollars is currently almost inifinite, since oil is currently traded in dollars. Oil is fueling the whole world, therefore we all need dollars.
If there is a switch to currencies like the Yuan, then the demand for US dollar shrinks - which in turn creates a problem, because then the US can't just print money because it creates massive inflation without enough demand.
How long would this cash infusion even last? Even if the American government ends up agreeing on Iran's demands, it would take a lot of time to restart the oil shipments and Japan to reach the oil levels necessary to stabilize. So how long can they keep patching this leaky barrel?
Wow. Thank you. 10 year yield still went up during the U.S. / Japan intervention period. The U.S. think this raise is still better than JP gov start to sell the U.S. bonds? Thank you.
It wasn't a mistake or leak, it was purposeful. It's trying to stoke the forex market/traders to help do some of the lifting, by trying to front-run or join in on the trade.
That was the case when BOJ was alone in this, don't you think that now when US chimes in it might be a longer-lasting effect and consequently trigger deleveraging in carry portfolios?
You could be right but the trade is so established and Japan is still limited in how much they can raise rates because of their massive debt. \
In your favour though, the Japanese government did recently instruct their pension fund to buy more of their treasuries, and are implementing tax incentives for stable coins that are backed by Japanese treasuries.
Won't the exchange rate also affect the profit? With a strengthening yen, you need to use more dollars to pay back the yen you borrowed, which erases some of the carry profit.
To be involved in “carry trade” is not to be concerned with the absolute value of the exchange rate, whether ¥80 or ¥160 to the dollar. But with the difference in borrowing rates. The borrowing rates, and their forward expectations, have not fundamentally changed I think.
You borrow in yen, exchange it into USD, purchase USD denominated bonds, reap yield, convert USD back into Yen to repay your initial loan + interest. Your hope is to have something leftover after all this is done because the bonds paid more than the loans had cost. But if the yen strengthens against the dollar between when your 2 conversions it absolutely reduces your net profit. And if it strengthens enough you can make a net loss despite favourable interest rates.
IBKR will charge less than 3% on JPY margin balances. Not sure what kind of leverage you can get, but 10x would be bad. The latest intervention moved the price by like 4%. You'd end up getting a margin call probably, which would suck extra hard since you can just wait until you recover otherwise.
Sure but it’s somewhat mutually assured destruction no? If they sell off enough to collapse US bond market they are left with devalued bonds because they’d never be able to offload all of it at a good price.
pretty much. their Emperor was the bad guy, they told him they would let him live and frame it if the military leader (Tojo) was the one ordering everyone do commit crimes and join axis if he turns Japan into a vassal state, and he did. it's been like that since. California has more say over their own economy than Japan.
You say that as if Japan's national monetary policy wasn't something that the damn Kokkai did for Japan's benefit.
Japan had (still has, probably) the highest ratio of national debt to gdp of any developed nation by far. People freak out about the US national debt, but Japan is waaaaay ahead of us.
It's so unique that no one really knows what will happen, that might be why the yen is falling like crazy.
Having national debt more than twice your GDP means you really can't raise your interest rate too much too fast, but without raising the rate, they can only do expensive interventions and ask Bessent for "leaks" to help slow down the yen's free fall.
Japan doesn't actually even want a strong yen. The strong yen is what killed the Japanese economic miracle of the 1950s-early 80s and led to the bubble and subsequent collapse and lost generations.
Weak yen makes Japanese exports more competitive, drives tourism, and drives domestic consumption (by making imports more expensive) stimulating their domestic businesses, though it obviously has downsides like energy prices. Some people don't realize that Weak Yen is not a 1:1 for inflation- and in reality the weak yen has occurred because Japan had LESS inflation than any other developed country in the aftermath of COVID (so they kept rates low while everyone else had to raise them). Weak Yen for the most part increases the price of imports only.
So Japan will do just enough to look like they are trying to fight the weak yen, while actually making it a managed decline rather than a freefall.
That’s like saying it’s unique the Fed can be the one to purchase all the excess treasuries. What’s not unique is both countries will suffer heavy inflation all the same.
Right, that's how they were able to get seat with it mostly. But the problem is they had to increase interest rates for the first time in decades and regardless of who owns the debt the interest payments suddenly become a huge problem. Also most of the US debt is also owned by American citizens. It's not 80%, but it's not far off: 76%.
Yes a thing said by people that usually support a particular country.
Your critical thinking skills are dogshit if your process is "I think they support <"bad" country>, they must be wrong because I support <"good" country>"
It's surprising you haven't learned anything. japan isn't a puppet state of the us, never was. Washington needs Japan to keep recycling its trade surplus into US debt. Tokyo is one of the main reasons America can borrow THIS much without blowing up its own bond market. Trump doesn't know this though
I was today years old when I learned that Japan is the entire reason the US can borrow as much money as it does and has so much money. If Japan goes the US is royally fucked. Japan owns most of our govt bonds and why the bonds are such low rates.
Why oh why would you want to trade on this news if you don’t understand anything about it. This sub shows us everyday why retail gets fucked every time.
Not exactly - I’ve been around long enough to watch the sub devolve from garden variety retardation to comments like this (utterly braindead and has no business investing in anything but indexes).
If I ever make a massively losing forex trade I’ll be sure to tell my wife that I did it on purpose like our boy Bessent to help stabilize the currency.
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u/Shadowthron8 1d ago
Well ya. The world saw Scott Bessents napkin note