Comment by jordanb
7 hours ago
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.
1. US actually bought Yen with Euros, not with dollars. The time will tell whether that will be a good trade for them.
2. What do you mean by 'No it would not'? I am not sure what are you trying to say. If Japan sells US bonds (instead of, as usual, buying), the aggregate demand for US bonds will go down, raising the yield. It seems that that is what the US is trying to prevent.
Either they spent euro reserves or bought euros with dollars so that's kinda irrelevant.
This thread kicked off with an incorrect belief that Japan had leverage over the US with some threat to spend reserves. That leverage doesn't really exist because it can not have any more effect on the American fiscal position than the one the Treasury just took.
In fact the Treasury is helping Japan maintain a stronger fiscal position by not forcing them to liquidate reserves to protect the yen.
Instead the Treasury is using it's own balance sheet to protect the yen which is bonkers from a monetary "america first" perspective and it only makes sense within the context of the Trump administration protecting the Takaichi government from a crisis caused by Trump's war in Iran.