Comment by mitthrowaway2
8 hours ago
> 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?
Because Japan would sell its treasures to buy dollar with which to buy Yen, pushing the yield on US treasures even higher, speeding up the debt spiral.
Similar as the credit-swap lines for the Gulf countries: They have enough treasures to sell to cover their cash flow problems (from the blocked Hormuz), but (see above).
No it would not.
* Japan needs dollars to buy yen.
* Japan sells US bonds to the US Fed in exchange for dollars
* Japan uses the dollars to buy up Yen adding Dollars to the market and reducing the number of Yen.
Versus:
* The US Treasury uses Dollars to buy Yen on the open market injecting the same number of dollars and removing the same number of Yen
* Now the US Treasury owns a bunch of Yen it didn't want.
* The US Treasury either has to leave them on the books or, like, maybe buy Japanese government debt so it can get rid of the Yen?
* In any case Japan gets its monetary outcome (price support for the yen) without having to give up reserves (US gov't debt it owns) to do so.
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