Comment by bsaul
8 hours ago
"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 ?
8 hours ago
"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.
It works very well in rich countries, but it is expensive, especially if the volume of exchanged currency is low. This is one of the reason behind the Euro, countries realised it would be way less expensive to defend the currency if they banded together. This is also a big why ex french colonies keeps colonial money, because that currency is pegged to the Euro and that peg protect it (the only way to get out cheaply is to do a West African Union or something similar, which is why anti-colonialists are big on the subject. They are right).
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.