4 ms·

> 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 wo

> 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.

jordanb 2mo ago
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?
- don_esteban 2mo ago
  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).
  - jordanb 2mo 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.
    - don_esteban 2mo 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.
      - jordanb 2mo ago
        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.
        don_esteban 2mo ago
        We are going in circles. Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. Of course, such selling will crash the treasuries, incurring huge losses to the seller. Still, hoping/pretending there is no leverage is closing your eyes to the reality. Reciprocally, US has capability to screw over such large holders by inflating itself out of debt, leaving them holding worthless paper/bits. That's why China has been carefully riding itself out of treasuries for years.
        jordanb 2mo ago
        > Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. If a country had a lot of US reserves they could increase the supply of dollars on the international markets through a lot of selling. But this is essentially what the US treasury is doing by using dollars to buy yen (with an extra step through Euros to make it more politically palatable) Your mistake is assuming that the dollar supply and the treasury yield isn't a slider that can be zipped back and forth by the Fed.

jordanb 2mo ago

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?

don_esteban 2mo ago
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).
- jordanb 2mo 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.
  - don_esteban 2mo 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.
    - jordanb 2mo ago
      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.
      - don_esteban 2mo ago
        We are going in circles. Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. Of course, such selling will crash the treasuries, incurring huge losses to the seller. Still, hoping/pretending there is no leverage is closing your eyes to the reality. Reciprocally, US has capability to screw over such large holders by inflating itself out of debt, leaving them holding worthless paper/bits. That's why China has been carefully riding itself out of treasuries for years.
        jordanb 2mo ago
        > Anybody with large enough holding of US treasuries has leverage over the US: Large selling of those treasures will raise the yield on them, which is the last thing the US in its current situation needs. No Japan or China or anyone else who owns treasuries can not control the yield on the US Treasuries because that is controlled by the Fed. The Fed has near infinite power to intervene to make the treasury yields be what they want. If a country had a lot of US reserves they could increase the supply of dollars on the international markets through a lot of selling. But this is essentially what the US treasury is doing by using dollars to buy yen (with an extra step through Euros to make it more politically palatable) Your mistake is assuming that the dollar supply and the treasury yield isn't a slider that can be zipped back and forth by the Fed.