Comment by foo12bar
8 hours ago
It's not that simple. Untold numbers of U.S. bonds are held by people running the "carry trade" (borrowing JPY at low interest rates in order to buy mostly U.S. treasuries and make money on the difference).
If you raise JPY rates, then these U.S. treasuries are going to get liquidated driving up U.S. rates and of course the U.S. doesn't like that.
So, I believe the US is pressuring Japan NOT to raise rates, i.e. to save the U.S.'s own currency.
This is undoubtedly why Bessent bought $5 to $10 billion JPY using Euro awhile back (as rumored, the exact amount is a secret). That way he could try and bailout Japan and by using Euro instead of USD, not affect US inflation so much. He also did it without telling anyone in Europe which quite pissed them off as well.
It's really funny seeing these shenanigans take place with all the pompousness the US shows regarding its currency and how it pretends it itself is not going broke.
It’s true that the carry trade unwinding suddenly would be…traumatic (and debatably the root cause of the rate spike that killed SVB a few years ago), but it could be managed gradually, and must be done to bring Japan back from the brink.
> So, I believe the US is pressuring Japan NOT to raise rates, i.e. to save the U.S.'s own currency.
The US is pressuring the BoJ not to liquidate US debt to get the USD needed to buy Yen. It only tangentially relates to bond yields, and has nothing to do with defending the USD.
It would be better for the US if Japan just normalized rates, but Japanese politicians are resistant.
The carry trade hides a lot of US debt, too. Why would the US only care about the US debt held sovereignly by Japan and not by the banks and hedgefunds executing the carry trade?
If the US is not trying to defend the US dollar, why'd they use Euros and not USD to prop up the Yen, and also why surprise everybody doing so?
And, if it is better for the US if Japan normalized rates, then why did the US buy yen at all? According to you, just telling Japan to raise rates would be better, right?
The carry trade does not hide public US debt. The US Treasury is concerned about Japan because it’s like the first or second largest holder of Treasuries in the world.
> If the US is not trying to defend the US dollar, why'd they use Euros and not USD to prop up the Yen
Because that was the legal facility open to them. They used a foreign currency reserve that they had the ability to trade.
> And, if it is better for the US if Japan normalized rates, then why did the US buy yen at all? According to you, just telling Japan to raise rates would be better, right?
Yes. Go re-read my comment: Japanese politicians do not want rates to go up. It’s like a cornerstone of current LDP policy.
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More detail on the Patrick Boyle video where the actual picture of Bessent's note that included that purchase is mentioned. Also the fact that these are specifically French bonds that were dumped with no warning. This is dropping the mask of Western solidarity I think Xi is over the moon