Japan holds a huge amount of US treasuries, and I guess was considering a mass sell off to raise cash to defend the Yen.
US treasury bond yields are already dangerously high for the US and Japan selling treasuries would push yields up even higher, and could trigger more panic selling from others.
I guess this is Bessent's scheme to try and kick that can down the road.
Setting aside the obvious fact that the BOJ does not buy oil, they’ve been engaged in a (futile) currency defense scheme since long before the Iran conflict. This is purely about the interest rate spread.
It's kind of ironic how Stephen Miran's strategy of "to hell with the rest of the world, we do what we want" keeps running into electric fences. They want to devalue and inflate the dollar, but the Horse in the Hospital keeps ruining the plan.
It’s all just a bunch of childish short term thinking. Granted this administration doesn’t care as long as they get theirs. They just blame anyone else as things come and go.
It's about propping up the yen in foreign exchange terms, so the essential operation is buying yen with dollars to increase the price of the former in a standard microeconomics way.
US bonds happen to be the assumed-safe sink where central banks store their dollars for this eventuality.
Currency interventions never work. They buy a bit of time maybe, but without any fixes to the underlying causes that made the intervention necessary, its a temporary solution.
This would be a dumb move. If Japan's treasury started selling a large amount of US debt, the Fed could buy it up and pay interest to itself.
Japan would then have a whole bunch of non-interest-bearing US dollars and the Fed would have a lot of interest-bearing US bonds.
Now it's true that Japan's treasury could then use those dollars to buy something else like stock in US companies but they could have done that all along anyway. They bought the debt for the coupon payments.
What's actually happening here is what it looks like: Japan's economy is starting to seize up due to the Iran war. Since they have to import all their oil they're suffering from a currency crisis (they can't export enough to balance payments on their oil bills). The US is stepping in to support them because 1) Japan's current government is allied politically with Trump and 2) Japan's an important geopolitical ally that is being hit very hard by the Iran war.
> Japan would then have a whole bunch of non-interest-bearing US dollars
They would not be holding the dollars long enough for the interest to matter. Those would instantly be traded for JPY, weakening the dollar and strengthening the yen, because the goal is to influence the exchange rate.
It's a big world. There are a lot of places to buy oil from. And the balance of payments is not that complicated with energy - like where do Middle East OPEC members reinvest their dollars? In world assets. Like Japanese companies.
IMO, the far more impactful geopolitical conflict is still the war in Ukraine, between two countries with allies that actually have deep ties to the rest of the world, with casualty counts exceeding a million people.
But nonetheless the problems there, in Japan, are the same that generations of Japanese have already identified as a big problem, predating the fall of Bretton Woods or whatever modern top down policies: the patriarchy, nepotism and xenophobia... Many similar problems to the West. You cannot bank or math your way out of a suffocating patriarchy, which is to say, the humanities people have always had a bigger impact on our day to day lives than the people crunching for Jane Street interviews.
> I guess this is Bessent's scheme to try and kick that can down the road.
This can be summed up policy for pretty much every single administration since I've been alive. For almost every single massively looming problem - financial, domestic, and foreign policy. Various degrees of can kicking I suppose, but the can shall be kicked regardless.
Yes but this administration was essentially elected on the idea that they can be horrible people and do horrible things because they will not kick the can down the road, and biting the bullet on these problems is worth the litany of abuses of our nation and our allies.
Turns out it's just the worst of both worlds.
Higher debt, more foreign intervention, slower growth, higher inflation, and our upper echelons occupied by people with no semblance of, or even gesture toward, personal character.
We as humans have to accept that systems operating on this scale have no other options than kicking the can down the road.
Like, throw the global economy into a 5-10 year depression is not an option, despite the fact that clearly it is what the economy needs in terms of a reset.
There is a very real possibility going down that path could cause an irreversible deflation spiral.
So the safer option must be chosen even if it creates mass wealth inequality and a different upwards inflation spiral which at least they can control
The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.
(From TFA.)
The Asian Financial Crisis of the 1990s was one of several that occurred during that decade (also: the recession triggered by the 1st Gulf War 1992, the Mexican Peso crisis of 1994, the Russian financial crisis of 1998, and arguably the post-dot-com bust in 2001, stretching the decade just a tad). For those present at the time, the dot-com boom was a short-lived (though extravagent) interval, beginning in late 1998, spiking early 2000, and crashing out in early 2001.
The start of the dot com boom I would mark at August 1995 when Netscape’s IPO was the most successful IPO to that date.
But really I mark it with the IETF RFC 1290 “There’s Gold In Them Thar Networks” in 1991.
But yes, the 21st century was defined in 1990’s. Everything since is derivative. I feel sad for those born after everything worth doing had been done already.
Bessent wrote that note very large and intentionally left it visible in hopes that it would be photographed and the market would do the work for him. If the market believes the US Government is going to spend $10B on JPY, it will happily price it right in without the US having to spend a penny.
These guys never do anything by accident, like when Jamie Dimon said "I probably shouldn't say this, but if you see one cockroach there's probably more".
You don't get to manoeuvre yourself to being the head of JP Morgan by starting sentences with "I probably shouldn't say this" in interviews and then saying something you actually think you shouldn't say
Propping up the yen may be more helpful for the US than if Japan hikes interest rates which is on the table (Google ’bring money home‘). The carry trade buying treasuries with debts incurred in yen has been a steady source for US funding. Eventually it will happen with collateral impact on treasury rates but this ‚supportive‘ move may just shift it past November.
Yes. Let’s not forget that the last time the BOJ hinted at rate normalization, it caused a global bond market freakout, a spike in Treasury rates, and a collapse in Asian stocks (the “BOJ Shock” of December 22).
One can make a reasonable story that this led to the SVB collapse.
Japan is a what? They've been dumping billions of dollars and trillions of yen into their economy since the 1990s. How is this any different than the past thirty years of intervention? I stg you guys. I get that ginning up a conspiracy gives you agency in a powerless world but come on.
Not really a conspiracy theory, it’s just an indicator of the underlying issues either the global economy. Yeah it’s been red for decades, it just shows there are segment of the world economy that are under high stress.
Difference is US now has its own issues which just makes the overall situation even more fragile.
No one knows for how long or what happens next, but you can’t look at things and think, eh it’s just the way it is. Things are a certain way until they’re not
While I don't agree with the phrasing of the above comment it doesn't seem factually wrong?
The article states similar coordinated currency manipulation (to instead weaken the yen) happened in 2011 after the Tohoku earthquake. There was a bunch of mutual currency manipulation in the 1990s by the US and Japan.[1] In the 1980s there was the Plaza and Louvre accords. [2][3] And you can find more going all the way back to end of World War 2.
The main interesting difference in the current intervention is that the US is selling euros (not dollars) to buy yen.
We need an alternative, because a nation servicing interest on debt as its #1 fiscal line-item is historically irrecoverable #2027 #ThisTimeIsDifferent?
My proposed alternative is that we must accept (as individual nations, perhaps some even balkanized) that austerity measures are irreversible, globally. We cannot help everybody. We should not help anybody until we've helped our own countrymen/fellow-neighbors, first.
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Even Warren Buffett agrees (and his heavily interviewed) espousing the necessity of taxing high net-worth individuals at higher rates (in his definition, $20M+ net-worth). He is not alone in Billionaires quotes similarly.
No Trillionaire has yet agreed with this statement, and fortunately this "accomplishment" must again (thankfully IMHO) wait to become precedent.
Future you might disagree with present you. But even if we disregard time, I think millions of consumers would benefit from the opportunity to have competitive markets again. If an actual economic forest fire was allowed to burn, we might eliminate some of the too-big-to-fail corruption and oligopoly that is the norm now and provide space for new seeds to grow.
Hold on there. The reason you mostly see sky is falling posts is that those get more engagement, both positive and negative. "Everything is fine" doesn't cause a reaction in a reader.
This is inherent to social media. It's bad for us, too, because it eventually tricks our brain into thinking the sky is always falling, no matter how we try to talk ourselves out of it.
Curious what others think. In my small real offline world, it seems this has caused people to get worked up about the sky falling a few times and then quit paying any attention to the sky or boy crying wolf at all.
Which means when events actually happen that will have a large negative impact on their life or their descendants, they just don't care. Which then results in another metaphor - boiling a frog.
I think Peter Schiff has been beating the drumbeats of collapse since 2008. But now on the other hand, we have a rising power China trying overthrow the current system which will accelerate the process. China wasn't in that position in 2008.
Best I can do is point out that much of American economic history for the past 300 years has been stumbling from crisis to crisis, and somehow we muddle through. A good book to understand this is https://a.co/d/0aTW4L6D
That "historic" characterization has a smell of sports statistics. Yeah, that player never scored a goal in a Friday when it's a full Moon on the team's home stadium; no, that's meaningless.
The Japanese economy is changing, but that's true for any economy at any time. The world is currently in a crisis that is testing international relations, but I hope you knew that already. This one intervention doesn't add much by itself.
Here’s the likely rationale from one of the FT comments:
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
—-
tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
Not really what you asked for, but what I would say is that this specific incident isn't like some huge deal or something. It's just the USA doing something that helps Japan stabilize its currency, and helps the USA avoid a spike in people selling US treasuries (which would raise US borrowing costs).
It's unusual, but not earth shattering or crazy.
____________________
The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
Why would the sky be falling? Getting the world's largest economy to prop up your own economy is kind of the point to being an ally of the biggest economy in the world; the Japanese and American governments being in bed together and planning the Japanese economy is not just normal, but is one of the bigger conspiracy theories persisting from the 1980s when US intervention is blamed as the reason Japan's economy stagnated in the 90s. So I don't understand why this would be a sky is falling moment.
Because then the world's largest economy suddenly needs to de-lever to afford the oil you made more expensive. The USA government will enter a debt-interest spiral if Japan sells its bonds. There will be no recovery from that besides, maybe, hyperinflation through printing away the debt.
Japan's industries have been squeezed hard by China's rare earth sanction and global energy price. I'm not sure some financial operations can wiggle them out of the situation.
I still have the tab (open from yesterday's /hn/) about Trickle Down Economics working as intended (which it obviously does, from a certain minority of the population's top-of-the-K-curve POV).
Honestly, this is a good strategic move for USA lifestyle status quo, given Japan does still hold a massive amount of US bonds / debt obligations (even though in the past decade it has been lessening its exposure to US debt instruments).
I believe 2026/2027 is the threshhold where USA interest (on our debt) is the top-line of our fiscal budget. #USA
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This is not financial advice (I am a semi-retired datacenter ELECTRICIAN, as bluecollar as they come):
look at the top marketcaps now verse just a few years ago. Pre-Covid, a $2T$+ marketcap was a rare achievement (i.e. Saudi Aramco... which is sometimes not even Top 10 anymore!): now there are three companies that are solid $4T$+ marketcaps, sometimes flirting into $5T$ (a few days at a time).
Inflation is the only answer, from that same top-of-the-K POV. Gotta keep them assets 'tected, ya'll.
Or track gold. Artwork. Land. Anything Real, legally speaking (except soon/now: perhaps not SFH housing) #WhateverDawg
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If you've been saving up for a house: right now you should really check out Michael Bordenaro's recent video on the topic of "Corporate Landlords shedding rental homes" [1] – I have no affiliation other than enjoying his almost-daily audio commentary – he is a former realtor (I went to college he sold houses) and his topics are extremely observant and varried.
Michael's self-shot walks helped inspire me to get in better shape (e.g. lose "dead parent" weight, lower BP, &c) and rejoin "the tanktop generation" (he is a bit younger than me, but I never grew up so...). |-30lbs|-12kg~|
Save until you can put down at least 20% (to avoid additional insurance fees), because in a-fifth of US states insurance is already going to cost more than property taxes (which is ridiculous)! [recalled from video, below; double-check my aging flesh memorybanks]. One in twelve SFHs are NOT insured, including mine (a rental); I also do not have personal rental insurance, as tenant, because I. do. not. care. #Mom&Pop
Doesn't mention that the Japanese would have sold US govt bonds to prop up the yen. But selling euros might force the Europeans to do just that to pro up the euro if need be. Is that a reasonable reading of things?
Euro countries hold even more US bonds than Japan does, and could sell those if they need to.
But the EU probably wont do that for monetary reasons. First, the EU doesnt really mind too much if the Euro drops in value a bit since it somewhat helps domestic industry. Second, the Euro seems to have strengthed against the dollar, not weakened since this was done.
I think if there was a coordinated selling off of US treasuries by Euro countries, it'd be to force a political concession from the USA, not to defend the Euro's value.
Not to repeat myself, but I'll point to earlier comments about what's going on with interest rates [1].
For some context here, it's worth mentioning the Yen carry trade [2]. This is actually relevant because it allegedly underpins the AI investment boom [3] and the Yen appreciating is a real problem for investors who borrowed Yen to invest, particularly if it's into a bubble that may well pop. It's a double shammy.
I'm wondering if this is going to be another George Soros moment. Soros famously broke the Bank of England who were trying to maintain a rate for the pound [4]. If massive AI investment is fueled on the Yen then there's a pretty big icentive to break the Yen by investors. This administration would normally be on board with that sort of thing (and actively profit from it) so it's not yet clear to me what's going on.
OK, let me restate that, since I had to think about it for a bit to see what you were getting at:
The yen carry trade is when you borrow yen (at ~0% interest), convert to dollars, buy assets in dollars, those assets hopefully appreciate, but they don't have to appreciate all that much because you were able to buy them on leverage with no interest.
But the other way to win on that trade is if the yen becomes cheaper while you were holding dollar-based assets. So those who are currently in the carry trade (that is, have borrowed yen) would not mind if the yen suddenly became dramatically cheaper.
I think that's a longer form of what the parent is saying.
Japan holds a huge amount of US treasuries, and I guess was considering a mass sell off to raise cash to defend the Yen.
US treasury bond yields are already dangerously high for the US and Japan selling treasuries would push yields up even higher, and could trigger more panic selling from others.
I guess this is Bessent's scheme to try and kick that can down the road.
> kick that can down the road
With two left feet and a couple of swings and misses, the can isnt in much danger.
You think the US collapse is going to happen right now despite this action?
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> With two left feet
...and about two feet left before the can hits the wall.
Japan has to sell off its bonds to get dollars to buy oil with since oil is so expensive. I wonder why that happened.
No. That has nothing to do with this.
Setting aside the obvious fact that the BOJ does not buy oil, they’ve been engaged in a (futile) currency defense scheme since long before the Iran conflict. This is purely about the interest rate spread.
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It's kind of ironic how Stephen Miran's strategy of "to hell with the rest of the world, we do what we want" keeps running into electric fences. They want to devalue and inflate the dollar, but the Horse in the Hospital keeps ruining the plan.
It’s all just a bunch of childish short term thinking. Granted this administration doesn’t care as long as they get theirs. They just blame anyone else as things come and go.
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"was considering a mass sell off to raise cash to defend the Yen."
How would that have worked ? Selling US bonds in exchange for yens, to diminish the amount of yen in the economy, and pump up its price ?
It's about propping up the yen in foreign exchange terms, so the essential operation is buying yen with dollars to increase the price of the former in a standard microeconomics way.
US bonds happen to be the assumed-safe sink where central banks store their dollars for this eventuality.
Currency interventions never work. They buy a bit of time maybe, but without any fixes to the underlying causes that made the intervention necessary, its a temporary solution.
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Treasuries are $ denominated -> sell them for $$, buy yen back, yen/usd drops. or have Uncle Sam buy yen.
This would be a dumb move. If Japan's treasury started selling a large amount of US debt, the Fed could buy it up and pay interest to itself.
Japan would then have a whole bunch of non-interest-bearing US dollars and the Fed would have a lot of interest-bearing US bonds.
Now it's true that Japan's treasury could then use those dollars to buy something else like stock in US companies but they could have done that all along anyway. They bought the debt for the coupon payments.
What's actually happening here is what it looks like: Japan's economy is starting to seize up due to the Iran war. Since they have to import all their oil they're suffering from a currency crisis (they can't export enough to balance payments on their oil bills). The US is stepping in to support them because 1) Japan's current government is allied politically with Trump and 2) Japan's an important geopolitical ally that is being hit very hard by the Iran war.
> Japan would then have a whole bunch of non-interest-bearing US dollars
They would not be holding the dollars long enough for the interest to matter. Those would instantly be traded for JPY, weakening the dollar and strengthening the yen, because the goal is to influence the exchange rate.
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> the Fed could buy it up and pay interest to itself.
With what money..?
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It's a big world. There are a lot of places to buy oil from. And the balance of payments is not that complicated with energy - like where do Middle East OPEC members reinvest their dollars? In world assets. Like Japanese companies.
IMO, the far more impactful geopolitical conflict is still the war in Ukraine, between two countries with allies that actually have deep ties to the rest of the world, with casualty counts exceeding a million people.
But nonetheless the problems there, in Japan, are the same that generations of Japanese have already identified as a big problem, predating the fall of Bretton Woods or whatever modern top down policies: the patriarchy, nepotism and xenophobia... Many similar problems to the West. You cannot bank or math your way out of a suffocating patriarchy, which is to say, the humanities people have always had a bigger impact on our day to day lives than the people crunching for Jane Street interviews.
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[flagged]
Even if he was, it's not like he could control the rampaging elephant in the room.
> I guess this is Bessent's scheme to try and kick that can down the road.
This can be summed up policy for pretty much every single administration since I've been alive. For almost every single massively looming problem - financial, domestic, and foreign policy. Various degrees of can kicking I suppose, but the can shall be kicked regardless.
Yes but this administration was essentially elected on the idea that they can be horrible people and do horrible things because they will not kick the can down the road, and biting the bullet on these problems is worth the litany of abuses of our nation and our allies.
Turns out it's just the worst of both worlds.
Higher debt, more foreign intervention, slower growth, higher inflation, and our upper echelons occupied by people with no semblance of, or even gesture toward, personal character.
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We as humans have to accept that systems operating on this scale have no other options than kicking the can down the road.
Like, throw the global economy into a 5-10 year depression is not an option, despite the fact that clearly it is what the economy needs in terms of a reset.
There is a very real possibility going down that path could cause an irreversible deflation spiral.
So the safer option must be chosen even if it creates mass wealth inequality and a different upwards inflation spiral which at least they can control
Historic, yes. Unprecedented, no.
The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.
(From TFA.)
The Asian Financial Crisis of the 1990s was one of several that occurred during that decade (also: the recession triggered by the 1st Gulf War 1992, the Mexican Peso crisis of 1994, the Russian financial crisis of 1998, and arguably the post-dot-com bust in 2001, stretching the decade just a tad). For those present at the time, the dot-com boom was a short-lived (though extravagent) interval, beginning in late 1998, spiking early 2000, and crashing out in early 2001.
<https://en.wikipedia.org/wiki/1997_Asian_financial_crisis>
The start of the dot com boom I would mark at August 1995 when Netscape’s IPO was the most successful IPO to that date.
But really I mark it with the IETF RFC 1290 “There’s Gold In Them Thar Networks” in 1991.
But yes, the 21st century was defined in 1990’s. Everything since is derivative. I feel sad for those born after everything worth doing had been done already.
If you look at NASDAQ and investment trends, it was markedly shorter. I had charts of both up whilst writing my earlier comment.
Though yes, I'd agree that NSCP launched the mania.
Wait, no way!
Someone posted a zoomed up photo of a US official (can't recall who) of a notepad a few days ago saying "To do: Buy Yen 5Y - 10Y" or something similar
It was US Treasury Secretary Scott Bessent
https://www.reuters.com/world/asia-pacific/bessents-to-do-li...
I rarely do emoticons, so I'll do this one:
<shocked_pikachu.GIF>
Bessent wrote that note very large and intentionally left it visible in hopes that it would be photographed and the market would do the work for him. If the market believes the US Government is going to spend $10B on JPY, it will happily price it right in without the US having to spend a penny.
These guys never do anything by accident, like when Jamie Dimon said "I probably shouldn't say this, but if you see one cockroach there's probably more".
You don't get to manoeuvre yourself to being the head of JP Morgan by starting sentences with "I probably shouldn't say this" in interviews and then saying something you actually think you shouldn't say
It does have an air of Austin Powers about it.
Dr Evil's notepad in his evil lair.
"To Do: Kill Austin Powers tomorrow!"
Which is hilarious because 5-10 billion dollars worth of Yen is not going to do much in the grand scheme of things. It’s a speed bump not a stop sign.
I believe that would mean 5-year or 10-year, as in the terms of the bonds. No amount disclosed.
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"Show me the personal incentives, and I'll tell you the outcome."
–Someone way the hell wiser than myself
[dead]
https://archive.is/lAaaZ
Thank you.
Propping up the yen may be more helpful for the US than if Japan hikes interest rates which is on the table (Google ’bring money home‘). The carry trade buying treasuries with debts incurred in yen has been a steady source for US funding. Eventually it will happen with collateral impact on treasury rates but this ‚supportive‘ move may just shift it past November.
Yes. Let’s not forget that the last time the BOJ hinted at rate normalization, it caused a global bond market freakout, a spike in Treasury rates, and a collapse in Asian stocks (the “BOJ Shock” of December 22).
One can make a reasonable story that this led to the SVB collapse.
The svb collapsed because they bought a lot of long term bonds during zero interest rate policy. It was inevitable.
Japan is the sort of canary in the coal mine.
so yeah if the yen pops - then the u.s will too given all the 'a.i' shenanigans & the market manipulation with oil.
but I guess the US Treasurer is willing to manipulate the market till they can't.
Can you elaborate?
at some point, the SPR runs dry
As will the SDR.
<https://en.wikipedia.org/wiki/Special_drawing_rights>
Japan is a what? They've been dumping billions of dollars and trillions of yen into their economy since the 1990s. How is this any different than the past thirty years of intervention? I stg you guys. I get that ginning up a conspiracy gives you agency in a powerless world but come on.
Not really a conspiracy theory, it’s just an indicator of the underlying issues either the global economy. Yeah it’s been red for decades, it just shows there are segment of the world economy that are under high stress.
Difference is US now has its own issues which just makes the overall situation even more fragile.
No one knows for how long or what happens next, but you can’t look at things and think, eh it’s just the way it is. Things are a certain way until they’re not
While I don't agree with the phrasing of the above comment it doesn't seem factually wrong?
The article states similar coordinated currency manipulation (to instead weaken the yen) happened in 2011 after the Tohoku earthquake. There was a bunch of mutual currency manipulation in the 1990s by the US and Japan.[1] In the 1980s there was the Plaza and Louvre accords. [2][3] And you can find more going all the way back to end of World War 2.
The main interesting difference in the current intervention is that the US is selling euros (not dollars) to buy yen.
[1] https://www.nber.org/papers/w8914
[2] https://en.wikipedia.org/wiki/Plaza_Accord
[3] https://en.wikipedia.org/wiki/Louvre_Accord
If you can manipulate the market why not do it?
Literally no one benefits from the alternative.
Manipulation of the market never comes for free.
You just delay, and render unpredictable, the eventual reckoning, for short-term benefits.
It will be interesting to see who’s gonna blame the free market when that day arrives.
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We need an alternative, because a nation servicing interest on debt as its #1 fiscal line-item is historically irrecoverable #2027 #ThisTimeIsDifferent?
My proposed alternative is that we must accept (as individual nations, perhaps some even balkanized) that austerity measures are irreversible, globally. We cannot help everybody. We should not help anybody until we've helped our own countrymen/fellow-neighbors, first.
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Even Warren Buffett agrees (and his heavily interviewed) espousing the necessity of taxing high net-worth individuals at higher rates (in his definition, $20M+ net-worth). He is not alone in Billionaires quotes similarly.
No Trillionaire has yet agreed with this statement, and fortunately this "accomplishment" must again (thankfully IMHO) wait to become precedent.
> Literally no one benefits from the alternative.
Future you might disagree with present you. But even if we disregard time, I think millions of consumers would benefit from the opportunity to have competitive markets again. If an actual economic forest fire was allowed to burn, we might eliminate some of the too-big-to-fail corruption and oligopoly that is the norm now and provide space for new seeds to grow.
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Can anyone steel man the “this isn’t a big deal” side of this?
On x and reddit all I see are sky is falling posts.
Hold on there. The reason you mostly see sky is falling posts is that those get more engagement, both positive and negative. "Everything is fine" doesn't cause a reaction in a reader.
This is inherent to social media. It's bad for us, too, because it eventually tricks our brain into thinking the sky is always falling, no matter how we try to talk ourselves out of it.
Curious what others think. In my small real offline world, it seems this has caused people to get worked up about the sky falling a few times and then quit paying any attention to the sky or boy crying wolf at all.
Which means when events actually happen that will have a large negative impact on their life or their descendants, they just don't care. Which then results in another metaphor - boiling a frog.
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I think Peter Schiff has been beating the drumbeats of collapse since 2008. But now on the other hand, we have a rising power China trying overthrow the current system which will accelerate the process. China wasn't in that position in 2008.
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Best I can do is point out that much of American economic history for the past 300 years has been stumbling from crisis to crisis, and somehow we muddle through. A good book to understand this is https://a.co/d/0aTW4L6D
I don't disagree, but I'd point out that this is a weak steeleman. Essentially it's, "past performance guarantees future results."
We only have a limited sample size of economic data.
That "historic" characterization has a smell of sports statistics. Yeah, that player never scored a goal in a Friday when it's a full Moon on the team's home stadium; no, that's meaningless.
The Japanese economy is changing, but that's true for any economy at any time. The world is currently in a crisis that is testing international relations, but I hope you knew that already. This one intervention doesn't add much by itself.
Here’s the likely rationale from one of the FT comments:
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
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tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
> hope their bet on JPY vs EUR pays off in the long-term
Which bet?
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To see the steelman position explained properly, I would suggest to follow macro guy Luke Gromen both on twitter and on YouTube.
Not really what you asked for, but what I would say is that this specific incident isn't like some huge deal or something. It's just the USA doing something that helps Japan stabilize its currency, and helps the USA avoid a spike in people selling US treasuries (which would raise US borrowing costs).
It's unusual, but not earth shattering or crazy.
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The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
Don’t forget the EUR side to the operation. US is helping Japan by selling Euros. The big question whether this is a sensible bet.
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> unilaterally converting some already sold bonds to '100 year bonds'
Is this even legal? I mean, is this possibility stated in some terms and conditions that one must accept when purchasing a bond?
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The sky has been falling for the Yen for about thirty years now. At this point it feels like the boy who cried wolf.
Why would the sky be falling? Getting the world's largest economy to prop up your own economy is kind of the point to being an ally of the biggest economy in the world; the Japanese and American governments being in bed together and planning the Japanese economy is not just normal, but is one of the bigger conspiracy theories persisting from the 1980s when US intervention is blamed as the reason Japan's economy stagnated in the 90s. So I don't understand why this would be a sky is falling moment.
Because then the world's largest economy suddenly needs to de-lever to afford the oil you made more expensive. The USA government will enter a debt-interest spiral if Japan sells its bonds. There will be no recovery from that besides, maybe, hyperinflation through printing away the debt.
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FX interventions are nothing new and 3% isn't nothing but it's not that much. The sun will rise in the morning, nbd.
Japan's industries have been squeezed hard by China's rare earth sanction and global energy price. I'm not sure some financial operations can wiggle them out of the situation.
This has to be the first time I've seen a graph with an inverted scale.
Yeah… what was the point of that?
Weak yen is low, strong yen is high.
Too. Big. To. Fail.
I still have the tab (open from yesterday's /hn/) about Trickle Down Economics working as intended (which it obviously does, from a certain minority of the population's top-of-the-K-curve POV).
Honestly, this is a good strategic move for USA lifestyle status quo, given Japan does still hold a massive amount of US bonds / debt obligations (even though in the past decade it has been lessening its exposure to US debt instruments).
I believe 2026/2027 is the threshhold where USA interest (on our debt) is the top-line of our fiscal budget. #USA
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This is not financial advice (I am a semi-retired datacenter ELECTRICIAN, as bluecollar as they come):
look at the top marketcaps now verse just a few years ago. Pre-Covid, a $2T$+ marketcap was a rare achievement (i.e. Saudi Aramco... which is sometimes not even Top 10 anymore!): now there are three companies that are solid $4T$+ marketcaps, sometimes flirting into $5T$ (a few days at a time).
Inflation is the only answer, from that same top-of-the-K POV. Gotta keep them assets 'tected, ya'll.
Or track gold. Artwork. Land. Anything Real, legally speaking (except soon/now: perhaps not SFH housing) #WhateverDawg
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If you've been saving up for a house: right now you should really check out Michael Bordenaro's recent video on the topic of "Corporate Landlords shedding rental homes" [1] – I have no affiliation other than enjoying his almost-daily audio commentary – he is a former realtor (I went to college he sold houses) and his topics are extremely observant and varried.
Michael's self-shot walks helped inspire me to get in better shape (e.g. lose "dead parent" weight, lower BP, &c) and rejoin "the tanktop generation" (he is a bit younger than me, but I never grew up so...). |-30lbs|-12kg~|
Save until you can put down at least 20% (to avoid additional insurance fees), because in a-fifth of US states insurance is already going to cost more than property taxes (which is ridiculous)! [recalled from video, below; double-check my aging flesh memorybanks]. One in twelve SFHs are NOT insured, including mine (a rental); I also do not have personal rental insurance, as tenant, because I. do. not. care. #Mom&Pop
[1] <https://www.youtube.com/watch?v=0n8trvfUTZs> spec: 5m40s (for a list of companies net-shedding)
Doesn't mention that the Japanese would have sold US govt bonds to prop up the yen. But selling euros might force the Europeans to do just that to pro up the euro if need be. Is that a reasonable reading of things?
Euro countries hold even more US bonds than Japan does, and could sell those if they need to.
But the EU probably wont do that for monetary reasons. First, the EU doesnt really mind too much if the Euro drops in value a bit since it somewhat helps domestic industry. Second, the Euro seems to have strengthed against the dollar, not weakened since this was done.
I think if there was a coordinated selling off of US treasuries by Euro countries, it'd be to force a political concession from the USA, not to defend the Euro's value.
I don’t think the ECB would intervene, a lower euro is not a panacea but helps local industry compete with Chinese industry.
Not to repeat myself, but I'll point to earlier comments about what's going on with interest rates [1].
For some context here, it's worth mentioning the Yen carry trade [2]. This is actually relevant because it allegedly underpins the AI investment boom [3] and the Yen appreciating is a real problem for investors who borrowed Yen to invest, particularly if it's into a bubble that may well pop. It's a double shammy.
I'm wondering if this is going to be another George Soros moment. Soros famously broke the Bank of England who were trying to maintain a rate for the pound [4]. If massive AI investment is fueled on the Yen then there's a pretty big icentive to break the Yen by investors. This administration would normally be on board with that sort of thing (and actively profit from it) so it's not yet clear to me what's going on.
[1]: https://www.investopedia.com/ask/answers/08/george-soros-ban...
Good reminder that exactly this time last year we had a big blow up that was short lived and blamed on the yen carry trade.
OK, let me restate that, since I had to think about it for a bit to see what you were getting at:
The yen carry trade is when you borrow yen (at ~0% interest), convert to dollars, buy assets in dollars, those assets hopefully appreciate, but they don't have to appreciate all that much because you were able to buy them on leverage with no interest.
But the other way to win on that trade is if the yen becomes cheaper while you were holding dollar-based assets. So those who are currently in the carry trade (that is, have borrowed yen) would not mind if the yen suddenly became dramatically cheaper.
I think that's a longer form of what the parent is saying.
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