Comment by eigenspace
12 hours ago
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?
You think they saved the human race by selling some EURJPY on Friday?
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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.
It is not completely but part of the reason Japan wants to defend it's currency is inflation because of increase in energy prices.
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Investor fears about rising oil prices and how Japan’s Prime Minister Sanae Takaichi can afford her fiscal stimulus plans recently pushed the yen towards 40-year lows
From TFA.
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> Setting aside the obvious fact that the BOJ does not buy oil
I guess you are not aware that it is the Japanese corporations and not the BOJ that hold the US bonds
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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.
Yup, I call it a cartoonish view of the world.
I think so many in power now, including lots of people in tech, have bonkers, cartoonish views of the world that just don't map to the reality and complexities of the 21st century. Scary stuff.
"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.
>> Currency interventions never work
Where did you learn that? It doesn't reflect the structural volumes present. Central banks make interventions all the time in line with little stabilisation programs. Those are almost always deemed success.
Maybe you deduced it by yourself? If so, fx is weird despite traditionally being seen as the simplest area in finance. E.g. It's counter-intuitive but we tend to think trade make up most FX volume globally. It's in the area of less than 3%. The majority by far is speculative and hedging.
The other trap is fx volume, people assume the know what volume is but then they learn expressions of fx volume is almost always actually tick volume.
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This is literally what central banks do. Central banks influence the economy with monetary policy, including things like this. That's all they're allowed to do, since they're intentionally not a political institution and have no legislative or executive authority. If you want the root cause to be handled, that's up to the legislative body. That's not the central bank's job.
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.
But this is what the US Treasury is doing on Japan's behalf without requiring Japan to give up any bonds. If Japan wants a stronger Yen against the dollar why not make them spend their reserves to support it?
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> the Fed could buy it up and pay interest to itself.
With what money..?
You're asking where the Fed gets 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.
They don't invest in Japanese companies because Japan is horrific for corporate governance. Huge cash holdings, cross investments, etc.
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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.
Anyone who thought the admin was anything but conmen deserves what they get.
The sad part is everyone else they’re going to take with them.
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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