Japan sells 60 billion US bonds?
Just when the yen depreciated to 160, the Bank of Japan finally intervened, appreciating the yen by more than 5% in just three days, bringing it close to 152.
According to data provided by the Federal Reserve, the dollars Japan used to intervene in the foreign exchange market may come from the foreign reverse repurchase agreement tool provided by the Federal Reserve. Since Japan would place some of its foreign exchange here to earn overnight interest rates, this portion of funds is now decreasing. And data from the Bank of Japan also shows that the scale of Japan's intervention in the foreign exchange market could reach as high as 9 trillion yen, equivalent to 60 billion US dollars.
Although no one has explicitly stated that Japan is selling US Treasury bonds to save the foreign exchange market, what I want to say is that one is for face, and the other is to give face. However, there is no doubt that Japan's sale of US Treasury bonds to save the foreign exchange market has become a fact. According to predictions from internationally renowned investment banks, in order to save the yen exchange rate, Japan may sell another 200 billion US dollars of US Treasury bonds in the future!
Then the incredible thing happened.
Old Bai began to indirectly blame Japan, saying that the reason for Japan's economic difficulties is that you, Japan, are xenophobic and resist immigration. But unexpectedly, Japan immediately began to retort, saying that although our economic growth is difficult, it is precisely because of Japan's aging population that we are opening our doors to more immigrants. It should be said that Japan has always been submissive and obedient to the United States, but why is it not obedient this time? If we connect the following series of causes and effects, then we will not find it difficult to understand why Japan is doing this? We will also be more clear about where Japan's future lies?
Just two days ago, the Federal Reserve made another statement, saying that the dollar will maintain interest rates unchanged. This means that the dollar has paused interest rate hikes for the seventh time since the increase in July 2023.We previously discussed the reasons why the US dollar did not lower interest rates. One reason is that the United States' high inflation and strong employment data remain robust, providing ample justification for the US dollar not to lower interest rates. Another reason is that the US is in a contest with China, aiming to create an Asian financial storm by continuing to tighten monetary policy.
However, what I want to say is that in the Sino-American economic game, which is primarily led by the US, China can be said to be as stable as a rock, but third parties will definitely suffer. For example, Japan. Due to the strong US dollar exchange rate, the yen has hit a 34-year low. Although a moderate devaluation of the yen is beneficial to Japan's exports, a significant devaluation means that Japan's wealth will be drained by the US. Now, global investors are starting to flock to Japan to buy cheap real estate, isn't this a massive loss of wealth?
Faced with a strong US dollar exchange rate, Japan actually has only two options: one is to raise interest rates in yen, and the other is to sell US debt to save the foreign exchange market. It is clear that after three decades of economic stagnation, Japan is certainly unwilling to suppress domestic economic development through interest rate hikes. Because raising yen interest rates not only appreciates externally but also internally. In comparison, intervening in the yen exchange market is the best method. After intervening in the exchange market, the yen only appreciates against the US dollar, which will prevent a large amount of capital from fleeing to short the Japanese economy, while also preserving the healthy development of Japan's domestic economy.
However, it is awkward that the Japanese Prime Minister has just finished a friendly meal with Old Bai, and even said to strengthen cooperation. If Japan is about to sell US debt immediately, how can this be explained to the US? But if Japan does not sell US debt, Japan's current problems are many, and it is even more obscured by the US, and those so-called commitments are always far from solving the immediate thirst!
This is the reason why both the US and Japan have clearly stated that Japan is intervening in the exchange market, but they have not explicitly said that Japan is selling US debt to intervene in the exchange market. It can be said that one is for face, and the other is for giving face.
However, the US is of course well aware of Japan's actions. We can better illustrate this point through Old Bai's counter-responsibility, that is, your poor economy is not because of me, but because of your own reasons. In one sentence, the blame is completely thrown away, while at the same time pressuring and warning Japan, don't go too far, just sell a bit of US debt to show it!
But what the US did not expect was that Japan began to resist, openly not giving face to Old Bai. So where does Japan's confidence to resist come from?
1. The strong US dollar index has indeed caused significant damage to Japan's economy.
I didn't speak when it was 155, now it's over 160, setting a 34-year low. If I remain silent, Japan may lose the next decade. You have been harvesting us all along, and you say our economic difficulties are because we are exclusive? Your words are too hurtful!So, Japan's resistance is also conveying to the United States that the current situation in Japan is entirely caused by the U.S. You cannot feign ignorance and claim that you are not lying when you are clearly hurting me, and I have no choice but to resist!
2. The U.S. economy is indeed in a dire state.
Behind the high inflation and strong employment in the United States lies the continuous money printing by the Federal Reserve. The U.S. is currently reaping global wealth through sustained interest rate hikes while simultaneously flooding the domestic economy with liquidity. Under these circumstances, it is clear to everyone whether the U.S. dollar can be expected to cut interest rates. It can be said that unless the U.S. causes several countries to go bankrupt, the dollar is unlikely to choose an easier path to interest rate cuts.
Speaking of which, Japan is the closest ally to the United States. If the U.S. continues to wield the sickle aggressively, then Japan would be the first country to fall. Japan is certainly well aware of this. The current resistance from Japan also reflects its dissatisfaction with U.S. dollar policies.