Comment by don_esteban
6 hours ago
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.