Comment by sph
11 hours ago
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?
Yes, which bet? I agree. There's no bet here. The comment correctly outlines why the US is doing this and how it benefits. And instead of concluding that "this is why they're doing it", they're making some weird hint that they're shorting the Euro and that somehow this doesn't pay off if the trade isn't favourable or something else? They benefit by BoJ not selling US treasuries. It doesn't matter how EUR is valued against JPY. It's not a bet between these two currencies. Europe would also benefit by their currency getting weaker, since it's filled with export-heavy countries like Germany.