Japan holds a huge amount of US treasuries, and I guess was considering a mass sell off to raise cash to defend the Yen.
US treasury bond yields are already dangerously high for the US and Japan selling treasuries would push yields up even higher, and could trigger more panic selling from others.
I guess this is Bessent's scheme to try and kick that can down the road.
It's kind of ironic how Stephen Miran's strategy of "to hell with the rest of the world, we do what we want" keeps running into electric fences. They want to devalue and inflate the dollar, but the Horse in the Hospital keeps ruining the plan.
Setting aside the obvious fact that the BOJ does not buy oil, they’ve been engaged in a (futile) currency defense scheme since long before the Iran conflict. This is purely about the interest rate spread.
The devaluation of the Yen against the dollar (from the typical 110:1 to these days 150:1) started around 2021 and has been a source of angst in Japan for quite some time. People were complaining about it constantly when I was last in Tokyo in December 2025, when oil was at $70/barrel.
The devaluation didn't really get out of control until 2022 IME.
In 2021 you were still able to divide by 100 and not be far off in conversion. Typically traded between 105 ~ 115.
Nowadays the Yen is so weak that I unconditionally convert my whole paycheck to USD after paying rent. Even if risk-free interest rates between Japan and United States converge, there's just not much reason to hold Yen if you want to avoid losing purchasing power to inflation.
e.g. I can risk money in NTT stock for a meager 3.0% dividend yield. Or I can convert to USD and keep the cash in my brokerage account, where it earns 3.4% interest. If I want to raise the risk to similar levels as the NTT stock, I would be looking at utility company ETFs yielding up to 7% for the past few years. Of course, there is foreign exchange risk (e.g. 10% move down in USD/JPY and a year's worth of carry trade gains are eliminated). But if the fundamentals were there for a stronger Yen, then intervention wouldn't be necessary. So for now I'm exposing myself to FX risk for the chance at getting marginally better wealth preservation.
As someone who hasn't followed this closely, when/why did things switch? Japan had the opposite deflation problem for years (decades?) and IIRC tried battling that with "money printer go brrrr" for a long time. How did inflation become their primary problem?
- External sources of inflation: COVID global inflation raises price of imports, same with Russia v. Ukraine global inflation.
- Post a few up is way too aggressive about completely dismissing Iran conflict inflation/gas. It matters, big time, and specifically for Japan, it's a 3rd thing to add to above external sources of inflation.
- They held interest rates while ex. US hiked them, also making currency less valuable. (intentionally, and a good idea)
FWIW this isn't necessarily a bad thing, for Japan. It broke the dam of stagnation.
It is more unusual that the US did this than that Japan's currency depreciated.
My $0.02: the backstory starts with the bonds boys not liking the new fed chair. Long term USD interest rates spiked big time this week, after his press conference, not after the announcing they weren't hiking rates.
If they allow another spike due to dread of Japan dumping Treasuries, you might suddenly have a crisis
(your source: 38 yo, BA in economics @ 22, who kept up with economics nerdery along the years)
My understanding is that Japan experienced the same kind of phenomenon that is unwinding in the US right now.
As long as your markets and tax policy are vicious enough that lots of normal people can barely make ends meet, you can print as much money as you want and it won't show up on the CPI. Instead, if you funnel that money to rich people, it will show entirely as growth in the price of investment instruments.
At the same time, you will have great economical indicators, and even large taxes that can be spent on anything that doesn't end up on the population's bank accounts (like on infrastructure).
But that money keeps piling up on investment, making them more and more distant from normal cost of life expenses. As soon as any of it reaches normal people, the CPI explodes.
Do you think the USD inflation will be less than 0.4% above the JPY inflation? I mean, the USA has basically just admitted to us they feel they're on the precipice of a bond interest death spiral, which will cause hyperinflation when they print money to end it.
Investor fears about rising oil prices and how Japan’s Prime Minister Sanae Takaichi can afford her fiscal stimulus plans recently pushed the yen towards 40-year lows
That line is worth exactly as much as the daily financial news quote “explaining” why the stock market wiggled in a particular direction yesterday.
All of those things have some impact on “investors” thinking at all times. They do not uniquely explain the current events. Japan has been defending the yen like this since at least 2022.
It's about propping up the yen in foreign exchange terms, so the essential operation is buying yen with dollars to increase the price of the former in a standard microeconomics way.
US bonds happen to be the assumed-safe sink where central banks store their dollars for this eventuality.
Currency interventions never work. They buy a bit of time maybe, but without any fixes to the underlying causes that made the intervention necessary, its a temporary solution.
Where did you learn that? It doesn't reflect the structural volumes present. Central banks make interventions all the time in line with little stabilisation programs. Those are almost always deemed success.
Maybe you deduced it by yourself? If so, fx is weird despite traditionally being seen as the simplest area in finance. E.g. It's counter-intuitive but we tend to think trade make up most FX volume globally. It's in the area of less than 3%. The majority by far is speculative and hedging.
The other trap is fx volume, people assume the know what volume is but then they learn expressions of fx volume is almost always actually tick volume.
This is literally what central banks do. Central banks influence the economy with monetary policy, including things like this. That's all they're allowed to do, since they're intentionally not a political institution and have no legislative or executive authority. If you want the root cause to be handled, that's up to the legislative body. That's not the central bank's job.
This would be a dumb move. If Japan's treasury started selling a large amount of US debt, the Fed could buy it up and pay interest to itself.
Japan would then have a whole bunch of non-interest-bearing US dollars and the Fed would have a lot of interest-bearing US bonds.
Now it's true that Japan's treasury could then use those dollars to buy something else like stock in US companies but they could have done that all along anyway. They bought the debt for the coupon payments.
What's actually happening here is what it looks like: Japan's economy is starting to seize up due to the Iran war. Since they have to import all their oil they're suffering from a currency crisis (they can't export enough to balance payments on their oil bills). The US is stepping in to support them because 1) Japan's current government is allied politically with Trump and 2) Japan's an important geopolitical ally that is being hit very hard by the Iran war.
> 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.
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?
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).
They have the option of simply putting it on their books, but that is the very last option.
They would rather borrow it. Sometimes they borrow it from themselves at artificially low rates, which is still better than simply not treating it as a debt at all.
Their preferred option is to auction off bonds. Though just at the moment rates on those bonds are extremely high, because reasons.
It's a big world. There are a lot of places to buy oil from. And the balance of payments is not that complicated with energy - like where do Middle East OPEC members reinvest their dollars? In world assets. Like Japanese companies.
IMO, the far more impactful geopolitical conflict is still the war in Ukraine, between two countries with allies that actually have deep ties to the rest of the world, with casualty counts exceeding a million people.
But nonetheless the problems there, in Japan, are the same that generations of Japanese have already identified as a big problem, predating the fall of Bretton Woods or whatever modern top down policies: the patriarchy, nepotism and xenophobia... Many similar problems to the West. You cannot bank or math your way out of a suffocating patriarchy, which is to say, the humanities people have always had a bigger impact on our day to day lives than the people crunching for Jane Street interviews.
> I guess this is Bessent's scheme to try and kick that can down the road.
This can be summed up policy for pretty much every single administration since I've been alive. For almost every single massively looming problem - financial, domestic, and foreign policy. Various degrees of can kicking I suppose, but the can shall be kicked regardless.
Yes but this administration was essentially elected on the idea that they can be horrible people and do horrible things because they will not kick the can down the road, and biting the bullet on these problems is worth the litany of abuses of our nation and our allies.
Turns out it's just the worst of both worlds.
Higher debt, more foreign intervention, slower growth, higher inflation, and our upper echelons occupied by people with no semblance of, or even gesture toward, personal character.
American voters exist in an environment of propaganda addiction, with every piece of their personal technology reinforcing and profiting from said addiction, that has never existed before. I have great empathy and understanding for those who are bombarded by voices that are actively manipulating them for engagement, and I believe this empathy is key to understanding if, and how, a landscape of echo chambers can nonetheless result in a sustainable and balanced future.
(edit: see below for my response about the limits of this)
Understanding, absolutely. None of us are immune from propaganda, and most of us have at one time or another been swayed by selective arguments and echo chambers to behave poorly.
I don’t like that you have empathy for people who are right this second steering the government in a project of performative cruelty against me. I think you should withhold your empathy until they’ve been stopped and appropriately punished for their misdeeds.
To be very clear: there's a difference between the people shaping/benefiting from/profiting from this system, and those being shaped by it. And, without sharing too much personal info, I am very much one of those being attacked by such a project of performative cruelty, and far too many people I know and love have suffered - and the architects of these projects must not escape accountability.
But I have to believe that a sizable number of people exist out there: the ones who have not carpetbagged on the ragebait economy, but who have been the ones taken down an algorithmic video-feed rabbit hole primed because of the news channel playing at their workplace or words of hatred shared by a community leader... that this person has been taught to fear rather than understand, that that person still has the innate capacity to understand, and that a future can be built on that capacity.
No, it's the idea of "getting in their minds" and understanding what their perspective must be from the inside that I object to. It's not the right time for that. If a bully starts punching the guy who lives one house north of me, I need you to help get the bully off of him, not start theorizing about why bullies act this way and why people might support them.
I think that winning (and retaining political advantage over time) is probably a prerequisite for enacting any punishments, much less correcting other issues.
Uhhhh... sure...? Are you implying that "the other side" will never again hold power? Because that's a very silly view, if so.
I'm quite sure the single most popular platform someone could run on today is simply "aggressively prosecute every single crime committed by the MAGA apparatus."
Punitive campaigns seem to work best with the right wing base. There’s a large squishy center (and a sizable segment of the left) that doesn’t vote when things go too negative.
If you want to contrast with a real world example, Obama won as an unknown candidate running on “hope and change” despite racial bias.
But it’s probably better to lose if presenting a positive message would make you feel icky.
I am certainly willing to accept, and empathize with, people being bombarded by political propaganda that leads them to stupid ideas. There is no shortage of this, across all political stripes.
What I will decidedly not accept is when people steadfastly refuse to listen to their fellow citizens' criticisms of their chosen propaganda, but instead go on the offensive attacking anyone who deviates from it - even when people are trying to engage with them using their own stated preferences regarding morals, rights, economics, etc! This is the highly toxic dynamic underlying the actual division, and is exactly what enables the negative-sum con job based around vice signalling.
> I believe this empathy is key to understanding if, and how, a landscape of echo chambers can nonetheless result in a sustainable and balanced future.
That ship has sailed. This administration is reinforcing that it is okay, even something to be celebrated, to be doing violence to those that they dislike, for whatever reasons. It is not mere parroting of propaganda that is the concern, but the consequences thereof. There is no "sustainable and balanced future" in that.
I have had arguments on this very site where I've been told that -I- and others like me are at fault. At fault for having exhausted tolerance for people peddling things like "after-birth abortions" (Did you know that in some Democrat states you can have an abortion up to 30 days after the baby is born?!?) and similar absolute garbage. Not even "differences of opinion or perspective". I've been told endlessly, "Maybe I need to put more effort into why they think or feel that way?" That won't work, because I'll be the only one. It's never "maybe they should think about why I think that's absolutely ridiculous". There's no effort on critical reasoning or discourse that will work there, because it's not grounded in reason in the first place. And when that comes up, crickets. But no, keep going high, keep working on empathy for people who actively celebrate LE shooting people, a President that will say from the Resolute Desk in the Oval Office, quote, "My kids are insider trading all the time".
That ship has sailed. I'm not sure where it goes from here, but my fear is somewhere even uglier.
We as humans have to accept that systems operating on this scale have no other options than kicking the can down the road.
Like, throw the global economy into a 5-10 year depression is not an option, despite the fact that clearly it is what the economy needs in terms of a reset.
There is a very real possibility going down that path could cause an irreversible deflation spiral.
So the safer option must be chosen even if it creates mass wealth inequality and a different upwards inflation spiral which at least they can control
The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.
(From TFA.)
The Asian Financial Crisis of the 1990s was one of several that occurred during that decade (also: the recession triggered by the 1st Gulf War 1992, the Mexican Peso crisis of 1994, the Russian financial crisis of 1998, and arguably the post-dot-com bust in 2001, stretching the decade just a tad). For those present at the time, the dot-com boom was a short-lived (though extravagent) interval, beginning in late 1998, spiking early 2000, and crashing out in early 2001.
The start of the dot com boom I would mark at August 1995 when Netscape’s IPO was the most successful IPO to that date.
But really I mark it with the IETF RFC 1290 “There’s Gold In Them Thar Networks” in 1991.
But yes, the 21st century was defined in 1990’s. Everything since is derivative. I feel sad for those born after everything worth doing had been done already.
Bessent wrote that note very large and intentionally left it visible in hopes that it would be photographed and the market would do the work for him. If the market believes the US Government is going to spend $10B on JPY, it will happily price it right in without the US having to spend a penny.
Propping up the yen may be more helpful for the US than if Japan hikes interest rates which is on the table (Google ’bring money home‘). The carry trade buying treasuries with debts incurred in yen has been a steady source for US funding. Eventually it will happen with collateral impact on treasury rates but this ‚supportive‘ move may just shift it past November.
Yes. Let’s not forget that the last time the BOJ hinted at rate normalization, it caused a global bond market freakout, a spike in Treasury rates, and a collapse in Asian stocks (the “BOJ Shock” of December 22).
One can make a reasonable story that this led to the SVB collapse.
Japan is a what? They've been dumping billions of dollars and trillions of yen into their economy since the 1990s. How is this any different than the past thirty years of intervention? I stg you guys. I get that ginning up a conspiracy gives you agency in a powerless world but come on.
While I don't agree with the phrasing of the above comment it doesn't seem factually wrong?
The article states similar coordinated currency manipulation (to instead weaken the yen) happened in 2011 after the Tohoku earthquake. There was a bunch of mutual currency manipulation in the 1990s by the US and Japan.[1] In the 1980s there was the Plaza and Louvre accords. [2][3] And you can find more going all the way back to end of World War 2.
The main interesting difference in the current intervention is that the US is selling euros (not dollars) to buy yen.
We need an alternative, because a nation servicing interest on debt as its #1 fiscal line-item is historically irrecoverable #2027 #ThisTimeIsDifferent?
My proposed alternative is that we must accept (as individual nations, perhaps some even balkanized) that austerity measures are irreversible, globally. We cannot help everybody. We should not help anybody until we've helped our own countrymen/fellow-neighbors, first.
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Even Warren Buffett agrees (and his heavily interviewed) espousing the necessity of taxing high net-worth individuals at higher rates (in his definition, $20M+ net-worth). He is not alone in Billionaires quotes similarly.
No Trillionaire has yet agreed with this statement, and fortunately this "accomplishment" must again (thankfully IMHO) wait to become precedent.
Future you might disagree with present you. But even if we disregard time, I think millions of consumers would benefit from the opportunity to have competitive markets again. If an actual economic forest fire was allowed to burn, we might eliminate some of the too-big-to-fail corruption and oligopoly that is the norm now and provide space for new seeds to grow.
The problem with this idea which is common in some circles is that most of the businesses involved are commodity or lowish margin. They likely got built either with government support or before the current margin's were a thing. Becdause you can't make a high enough ROI on building a new competitor your seeds will likely die in barren soil never having germinated. In today's markets the likely result will be increased business going to China, India, Vietnam and the like. If you're talking about banking then the worst possible scenario at a national level is that you're borrowing money denominated in a foreign currency. The adventure after 1929 was a result of deliberate policy to liquidate and let it burn.
We already have anti-trust and other regulation to manage this problem, we simply need to use it.
There's no end of competition, the world changes, companies bloat and make bad choices, smaller competitors can react and change faster - it's only in our corporate hegemony that we don't consider that a viable alternative.
Companies also learn from history, and with enough data, can make perfect decisions in real time. The end result, is you end up with “Final Companies”, where a market becomes so dominated an entrant cannot even start up, because it requires operating to even greater perfection just to stay in the game.
Hold on there. The reason you mostly see sky is falling posts is that those get more engagement, both positive and negative. "Everything is fine" doesn't cause a reaction in a reader.
This is inherent to social media. It's bad for us, too, because it eventually tricks our brain into thinking the sky is always falling, no matter how we try to talk ourselves out of it.
Curious what others think. In my small real offline world, it seems this has caused people to get worked up about the sky falling a few times and then quit paying any attention to the sky or boy crying wolf at all.
Which means when events actually happen that will have a large negative impact on their life or their descendants, they just don't care. Which then results in another metaphor - boiling a frog.
The not caring is honestly a good idea for most people. Very few people have any action they can take that will make measurable change on those negative impacts.
I'm just not sure what it could mean for a typical person, who does not participate in and is not familiar with the EUR/JPY foreign exchange market, to care about a story like this. Is there some financial decision I should be making based on this intervention? If we all got together and protested, might we convince Bessent to buy the euros back, and would that restore the status quo ante if he did? The few people who have any levers to pull here have surely been made aware of the story by now, so if the answers to all of the above are "no", it seems correct for most people not to care.
I think Peter Schiff has been beating the drumbeats of collapse since 2008. But now on the other hand, we have a rising power China trying overthrow the current system which will accelerate the process. China wasn't in that position in 2008.
Best I can do is point out that much of American economic history for the past 300 years has been stumbling from crisis to crisis, and somehow we muddle through. A good book to understand this is https://a.co/d/0aTW4L6D
That "historic" characterization has a smell of sports statistics. Yeah, that player never scored a goal in a Friday when it's a full Moon on the team's home stadium; no, that's meaningless.
The Japanese economy is changing, but that's true for any economy at any time. The world is currently in a crisis that is testing international relations, but I hope you knew that already. This one intervention doesn't add much by itself.
Here’s the likely rationale from one of the FT comments:
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
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tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
Yes, which bet? I agree. There's no bet here. The comment correctly outlines why the US is doing this and how it benefits. And instead of concluding that "this is why they're doing it", they're making some weird hint that they're shorting the Euro and that somehow this doesn't pay off if the trade isn't favourable or something else? They benefit by BoJ not selling US treasuries. It doesn't matter how EUR is valued against JPY. It's not a bet between these two currencies. Europe would also benefit by their currency getting weaker, since it's filled with export-heavy countries like Germany.
Not really what you asked for, but what I would say is that this specific incident isn't like some huge deal or something. It's just the USA doing something that helps Japan stabilize its currency, and helps the USA avoid a spike in people selling US treasuries (which would raise US borrowing costs).
It's unusual, but not earth shattering or crazy.
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The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
As a European, I'm somewhat sensitive to that side of things, but if you look at the USD-EUR exchange rates, the Euro has only strengthened against the USD since this happened.
I guess it's just not a big enough shift to change the overall USD-EUR dynamics. Plus, I think a lot of the Eurozone wouldn't actually mind if the Euro weakened a litte, even if it'd make the current energy price problems worse.
But even if the USD did liquidate enough Euros to shift the dynamics, and if this was decided to be a bad thing, the Eurozone countries hold way more US treasuries than Japan, and could just sell those if they wanted to, which could quickly bring things back into balance, and would be a major deterrent against the US.
US sells EUR, buys JPY, BoJ doesn't need to sell US treasuries. There's no bet here. What do you mean by bet? They could be losing money on the trade and it wouldn't matter as long as they avoid US treasury yields from rising any further.
I doubt it's 'legal' per-se, but I also doubt the legal troubles would be the biggest obstacle to doing it as it'd cause an insane meltdown in the bond market.
I double checked and it wasn't actually Bessent who suggested it but Miran. This was back when he was a bigger figure, probably played a role in his sidelining.
Why would the sky be falling? Getting the world's largest economy to prop up your own economy is kind of the point to being an ally of the biggest economy in the world; the Japanese and American governments being in bed together and planning the Japanese economy is not just normal, but is one of the bigger conspiracy theories persisting from the 1980s when US intervention is blamed as the reason Japan's economy stagnated in the 90s. So I don't understand why this would be a sky is falling moment.
Because then the world's largest economy suddenly needs to de-lever to afford the oil you made more expensive. The USA government will enter a debt-interest spiral if Japan sells its bonds. There will be no recovery from that besides, maybe, hyperinflation through printing away the debt.
Japan's industries have been squeezed hard by China's rare earth sanction and global energy price. I'm not sure some financial operations can wiggle them out of the situation.
I still have the tab (open from yesterday's /hn/) about Trickle Down Economics working as intended (which it obviously does, from a certain minority of the population's top-of-the-K-curve POV).
Honestly, this is a good strategic move for USA lifestyle status quo, given Japan does still hold a massive amount of US bonds / debt obligations (even though in the past decade it has been lessening its exposure to US debt instruments).
I believe 2026/2027 is the threshhold where USA interest (on our debt) is the top-line of our fiscal budget. #USA
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This is not financial advice (I am a semi-retired datacenter ELECTRICIAN, as bluecollar as they come):
look at the top marketcaps now verse just a few years ago. Pre-Covid, a $2T$+ marketcap was a rare achievement (i.e. Saudi Aramco... which is sometimes not even Top 10 anymore!): now there are three companies that are solid $4T$+ marketcaps, sometimes flirting into $5T$ (a few days at a time).
Inflation is the only answer, from that same top-of-the-K POV. Gotta keep them assets 'tected, ya'll.
Or track gold. Artwork. Land. Anything Real, legally speaking (except soon/now: perhaps not SFH housing) #WhateverDawg
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If you've been saving up for a house: right now you should really check out Michael Bordenaro's recent video on the topic of "Corporate Landlords shedding rental homes" [1] – I have no affiliation other than enjoying his almost-daily audio commentary – he is a former realtor (I went to college he sold houses) and his topics are extremely observant and varried.
Michael's self-shot walks helped inspire me to get in better shape (e.g. lose "dead parent" weight, lower BP, &c) and rejoin "the tanktop generation" (he is a bit younger than me, but I never grew up so...). |-30lbs|-12kg~|
Save until you can put down at least 20% (to avoid additional insurance fees), because in a-fifth of US states insurance is already going to cost more than property taxes (which is ridiculous)! [recalled from video, below; double-check my aging flesh memorybanks]. One in twelve SFHs are NOT insured, including mine (a rental); I also do not have personal rental insurance, as tenant, because I. do. not. care. #Mom&Pop
Doesn't mention that the Japanese would have sold US govt bonds to prop up the yen. But selling euros might force the Europeans to do just that to pro up the euro if need be. Is that a reasonable reading of things?
Euro countries hold even more US bonds than Japan does, and could sell those if they need to.
But the EU probably wont do that for monetary reasons. First, the EU doesnt really mind too much if the Euro drops in value a bit since it somewhat helps domestic industry. Second, the Euro seems to have strengthed against the dollar, not weakened since this was done.
I think if there was a coordinated selling off of US treasuries by Euro countries, it'd be to force a political concession from the USA, not to defend the Euro's value.
Not to repeat myself, but I'll point to earlier comments about what's going on with interest rates [1].
For some context here, it's worth mentioning the Yen carry trade [2]. This is actually relevant because it allegedly underpins the AI investment boom [3] and the Yen appreciating is a real problem for investors who borrowed Yen to invest, particularly if it's into a bubble that may well pop. It's a double shammy.
I'm wondering if this is going to be another George Soros moment. Soros famously broke the Bank of England who were trying to maintain a rate for the pound [4]. If massive AI investment is fueled on the Yen then there's a pretty big icentive to break the Yen by investors. This administration would normally be on board with that sort of thing (and actively profit from it) so it's not yet clear to me what's going on.
OK, let me restate that, since I had to think about it for a bit to see what you were getting at:
The yen carry trade is when you borrow yen (at ~0% interest), convert to dollars, buy assets in dollars, those assets hopefully appreciate, but they don't have to appreciate all that much because you were able to buy them on leverage with no interest.
But the other way to win on that trade is if the yen becomes cheaper while you were holding dollar-based assets. So those who are currently in the carry trade (that is, have borrowed yen) would not mind if the yen suddenly became dramatically cheaper.
I think that's a longer form of what the parent is saying.
US treasury bond yields are already dangerously high for the US and Japan selling treasuries would push yields up even higher, and could trigger more panic selling from others.
I guess this is Bessent's scheme to try and kick that can down the road.
With two left feet and a couple of swings and misses, the can isnt in much danger.
...and about two feet left before the can hits the wall.
Setting aside the obvious fact that the BOJ does not buy oil, they’ve been engaged in a (futile) currency defense scheme since long before the Iran conflict. This is purely about the interest rate spread.
The place where you go wrong is drawing a straight line to the US actions in Iran. They’re not directly connected.
In 2021 you were still able to divide by 100 and not be far off in conversion. Typically traded between 105 ~ 115.
Nowadays the Yen is so weak that I unconditionally convert my whole paycheck to USD after paying rent. Even if risk-free interest rates between Japan and United States converge, there's just not much reason to hold Yen if you want to avoid losing purchasing power to inflation.
e.g. I can risk money in NTT stock for a meager 3.0% dividend yield. Or I can convert to USD and keep the cash in my brokerage account, where it earns 3.4% interest. If I want to raise the risk to similar levels as the NTT stock, I would be looking at utility company ETFs yielding up to 7% for the past few years. Of course, there is foreign exchange risk (e.g. 10% move down in USD/JPY and a year's worth of carry trade gains are eliminated). But if the fundamentals were there for a stronger Yen, then intervention wouldn't be necessary. So for now I'm exposing myself to FX risk for the chance at getting marginally better wealth preservation.
- Post a few up is way too aggressive about completely dismissing Iran conflict inflation/gas. It matters, big time, and specifically for Japan, it's a 3rd thing to add to above external sources of inflation.
- They held interest rates while ex. US hiked them, also making currency less valuable. (intentionally, and a good idea)
FWIW this isn't necessarily a bad thing, for Japan. It broke the dam of stagnation.
It is more unusual that the US did this than that Japan's currency depreciated.
My $0.02: the backstory starts with the bonds boys not liking the new fed chair. Long term USD interest rates spiked big time this week, after his press conference, not after the announcing they weren't hiking rates.
If they allow another spike due to dread of Japan dumping Treasuries, you might suddenly have a crisis
(your source: 38 yo, BA in economics @ 22, who kept up with economics nerdery along the years)
As long as your markets and tax policy are vicious enough that lots of normal people can barely make ends meet, you can print as much money as you want and it won't show up on the CPI. Instead, if you funnel that money to rich people, it will show entirely as growth in the price of investment instruments.
At the same time, you will have great economical indicators, and even large taxes that can be spent on anything that doesn't end up on the population's bank accounts (like on infrastructure).
But that money keeps piling up on investment, making them more and more distant from normal cost of life expenses. As soon as any of it reaches normal people, the CPI explodes.
From TFA.
All of those things have some impact on “investors” thinking at all times. They do not uniquely explain the current events. Japan has been defending the yen like this since at least 2022.
I guess you are not aware that it is the Japanese corporations and not the BOJ that hold the US bonds
Look at the very first row, Japan is the single largest holder of US Treasuries. Why did you post this false claim? Please do better.
How would that have worked ? Selling US bonds in exchange for yens, to diminish the amount of yen in the economy, and pump up its price ?
US bonds happen to be the assumed-safe sink where central banks store their dollars for this eventuality.
Where did you learn that? It doesn't reflect the structural volumes present. Central banks make interventions all the time in line with little stabilisation programs. Those are almost always deemed success.
Maybe you deduced it by yourself? If so, fx is weird despite traditionally being seen as the simplest area in finance. E.g. It's counter-intuitive but we tend to think trade make up most FX volume globally. It's in the area of less than 3%. The majority by far is speculative and hedging.
The other trap is fx volume, people assume the know what volume is but then they learn expressions of fx volume is almost always actually tick volume.
Japan would then have a whole bunch of non-interest-bearing US dollars and the Fed would have a lot of interest-bearing US bonds.
Now it's true that Japan's treasury could then use those dollars to buy something else like stock in US companies but they could have done that all along anyway. They bought the debt for the coupon payments.
What's actually happening here is what it looks like: Japan's economy is starting to seize up due to the Iran war. Since they have to import all their oil they're suffering from a currency crisis (they can't export enough to balance payments on their oil bills). The US is stepping in to support them because 1) Japan's current government is allied politically with Trump and 2) Japan's an important geopolitical ally that is being hit very hard by the Iran war.
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.
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).
* 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.
With what money..?
They would rather borrow it. Sometimes they borrow it from themselves at artificially low rates, which is still better than simply not treating it as a debt at all.
Their preferred option is to auction off bonds. Though just at the moment rates on those bonds are extremely high, because reasons.
Two completely different and orthogonal institutions.
Also, rates are not high, they are historically well below the 30 years average.
IMO, the far more impactful geopolitical conflict is still the war in Ukraine, between two countries with allies that actually have deep ties to the rest of the world, with casualty counts exceeding a million people.
But nonetheless the problems there, in Japan, are the same that generations of Japanese have already identified as a big problem, predating the fall of Bretton Woods or whatever modern top down policies: the patriarchy, nepotism and xenophobia... Many similar problems to the West. You cannot bank or math your way out of a suffocating patriarchy, which is to say, the humanities people have always had a bigger impact on our day to day lives than the people crunching for Jane Street interviews.
This can be summed up policy for pretty much every single administration since I've been alive. For almost every single massively looming problem - financial, domestic, and foreign policy. Various degrees of can kicking I suppose, but the can shall be kicked regardless.
Turns out it's just the worst of both worlds.
Higher debt, more foreign intervention, slower growth, higher inflation, and our upper echelons occupied by people with no semblance of, or even gesture toward, personal character.
The sad part is everyone else they’re going to take with them.
American voters exist in an environment of propaganda addiction, with every piece of their personal technology reinforcing and profiting from said addiction, that has never existed before. I have great empathy and understanding for those who are bombarded by voices that are actively manipulating them for engagement, and I believe this empathy is key to understanding if, and how, a landscape of echo chambers can nonetheless result in a sustainable and balanced future.
(edit: see below for my response about the limits of this)
How many ‘DUI’s are acceptable? How many innocents dying will be ignored?
Enabling an addict makes you (in my opinion) just as culpable in the outcomes as they are.
I don’t like that you have empathy for people who are right this second steering the government in a project of performative cruelty against me. I think you should withhold your empathy until they’ve been stopped and appropriately punished for their misdeeds.
But I have to believe that a sizable number of people exist out there: the ones who have not carpetbagged on the ragebait economy, but who have been the ones taken down an algorithmic video-feed rabbit hole primed because of the news channel playing at their workplace or words of hatred shared by a community leader... that this person has been taught to fear rather than understand, that that person still has the innate capacity to understand, and that a future can be built on that capacity.
Seems to me that people who have committed crimes should be punished for those crimes. Call it "LAW AND ORDER!!!!" or something
I'm quite sure the single most popular platform someone could run on today is simply "aggressively prosecute every single crime committed by the MAGA apparatus."
If you want to contrast with a real world example, Obama won as an unknown candidate running on “hope and change” despite racial bias.
But it’s probably better to lose if presenting a positive message would make you feel icky.
What I will decidedly not accept is when people steadfastly refuse to listen to their fellow citizens' criticisms of their chosen propaganda, but instead go on the offensive attacking anyone who deviates from it - even when people are trying to engage with them using their own stated preferences regarding morals, rights, economics, etc! This is the highly toxic dynamic underlying the actual division, and is exactly what enables the negative-sum con job based around vice signalling.
That ship has sailed. This administration is reinforcing that it is okay, even something to be celebrated, to be doing violence to those that they dislike, for whatever reasons. It is not mere parroting of propaganda that is the concern, but the consequences thereof. There is no "sustainable and balanced future" in that.
I have had arguments on this very site where I've been told that -I- and others like me are at fault. At fault for having exhausted tolerance for people peddling things like "after-birth abortions" (Did you know that in some Democrat states you can have an abortion up to 30 days after the baby is born?!?) and similar absolute garbage. Not even "differences of opinion or perspective". I've been told endlessly, "Maybe I need to put more effort into why they think or feel that way?" That won't work, because I'll be the only one. It's never "maybe they should think about why I think that's absolutely ridiculous". There's no effort on critical reasoning or discourse that will work there, because it's not grounded in reason in the first place. And when that comes up, crickets. But no, keep going high, keep working on empathy for people who actively celebrate LE shooting people, a President that will say from the Resolute Desk in the Oval Office, quote, "My kids are insider trading all the time".
That ship has sailed. I'm not sure where it goes from here, but my fear is somewhere even uglier.
Like, throw the global economy into a 5-10 year depression is not an option, despite the fact that clearly it is what the economy needs in terms of a reset.
There is a very real possibility going down that path could cause an irreversible deflation spiral.
So the safer option must be chosen even if it creates mass wealth inequality and a different upwards inflation spiral which at least they can control
The Treasury’s intervention to bolster the yen is the first since 1998, when it bought the currency in order to strengthen Japan’s economy after the yen had dropped to eight-year lows. The US intervened in Japan’s currency in 2011 to weaken it as part of a co-ordinated international effort to prevent a dangerous currency appreciation after the Tohoku earthquake and tsunami.
(From TFA.)
The Asian Financial Crisis of the 1990s was one of several that occurred during that decade (also: the recession triggered by the 1st Gulf War 1992, the Mexican Peso crisis of 1994, the Russian financial crisis of 1998, and arguably the post-dot-com bust in 2001, stretching the decade just a tad). For those present at the time, the dot-com boom was a short-lived (though extravagent) interval, beginning in late 1998, spiking early 2000, and crashing out in early 2001.
<https://en.wikipedia.org/wiki/1997_Asian_financial_crisis>
But really I mark it with the IETF RFC 1290 “There’s Gold In Them Thar Networks” in 1991.
But yes, the 21st century was defined in 1990’s. Everything since is derivative. I feel sad for those born after everything worth doing had been done already.
Though yes, I'd agree that NSCP launched the mania.
Someone posted a zoomed up photo of a US official (can't recall who) of a notepad a few days ago saying "To do: Buy Yen 5Y - 10Y" or something similar
https://www.reuters.com/world/asia-pacific/bessents-to-do-li...
Dr Evil's notepad in his evil lair.
"To Do: Kill Austin Powers tomorrow!"
–Someone way the hell wiser than myself
One can make a reasonable story that this led to the SVB collapse.
so yeah if the yen pops - then the u.s will too given all the 'a.i' shenanigans & the market manipulation with oil.
but I guess the US Treasurer is willing to manipulate the market till they can't.
<https://en.wikipedia.org/wiki/Special_drawing_rights>
The article states similar coordinated currency manipulation (to instead weaken the yen) happened in 2011 after the Tohoku earthquake. There was a bunch of mutual currency manipulation in the 1990s by the US and Japan.[1] In the 1980s there was the Plaza and Louvre accords. [2][3] And you can find more going all the way back to end of World War 2.
The main interesting difference in the current intervention is that the US is selling euros (not dollars) to buy yen.
[1] https://www.nber.org/papers/w8914
[2] https://en.wikipedia.org/wiki/Plaza_Accord
[3] https://en.wikipedia.org/wiki/Louvre_Accord
Literally no one benefits from the alternative.
You just delay, and render unpredictable, the eventual reckoning, for short-term benefits.
It will be interesting to see who’s gonna blame the free market when that day arrives.
After a century, those short-term benefits add up to a long term benefit.
My proposed alternative is that we must accept (as individual nations, perhaps some even balkanized) that austerity measures are irreversible, globally. We cannot help everybody. We should not help anybody until we've helped our own countrymen/fellow-neighbors, first.
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Even Warren Buffett agrees (and his heavily interviewed) espousing the necessity of taxing high net-worth individuals at higher rates (in his definition, $20M+ net-worth). He is not alone in Billionaires quotes similarly.
No Trillionaire has yet agreed with this statement, and fortunately this "accomplishment" must again (thankfully IMHO) wait to become precedent.
Future you might disagree with present you. But even if we disregard time, I think millions of consumers would benefit from the opportunity to have competitive markets again. If an actual economic forest fire was allowed to burn, we might eliminate some of the too-big-to-fail corruption and oligopoly that is the norm now and provide space for new seeds to grow.
There's no end of competition, the world changes, companies bloat and make bad choices, smaller competitors can react and change faster - it's only in our corporate hegemony that we don't consider that a viable alternative.
On x and reddit all I see are sky is falling posts.
This is inherent to social media. It's bad for us, too, because it eventually tricks our brain into thinking the sky is always falling, no matter how we try to talk ourselves out of it.
Which means when events actually happen that will have a large negative impact on their life or their descendants, they just don't care. Which then results in another metaphor - boiling a frog.
Domestic demand is being prodded to grow, but the Chinese economy would be in tatters if exports fell off a cliff.
We only have a limited sample size of economic data.
The Japanese economy is changing, but that's true for any economy at any time. The world is currently in a crisis that is testing international relations, but I hope you knew that already. This one intervention doesn't add much by itself.
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
—-
tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
Which bet?
It's unusual, but not earth shattering or crazy.
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The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
I guess it's just not a big enough shift to change the overall USD-EUR dynamics. Plus, I think a lot of the Eurozone wouldn't actually mind if the Euro weakened a litte, even if it'd make the current energy price problems worse.
But even if the USD did liquidate enough Euros to shift the dynamics, and if this was decided to be a bad thing, the Eurozone countries hold way more US treasuries than Japan, and could just sell those if they wanted to, which could quickly bring things back into balance, and would be a major deterrent against the US.
Is this even legal? I mean, is this possibility stated in some terms and conditions that one must accept when purchasing a bond?
I double checked and it wasn't actually Bessent who suggested it but Miran. This was back when he was a bigger figure, probably played a role in his sidelining.
Regardless if they sell all their bonds this second or not, the US spiral is a foregone conclusion.
I still have the tab (open from yesterday's /hn/) about Trickle Down Economics working as intended (which it obviously does, from a certain minority of the population's top-of-the-K-curve POV).
Honestly, this is a good strategic move for USA lifestyle status quo, given Japan does still hold a massive amount of US bonds / debt obligations (even though in the past decade it has been lessening its exposure to US debt instruments).
I believe 2026/2027 is the threshhold where USA interest (on our debt) is the top-line of our fiscal budget. #USA
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This is not financial advice (I am a semi-retired datacenter ELECTRICIAN, as bluecollar as they come):
look at the top marketcaps now verse just a few years ago. Pre-Covid, a $2T$+ marketcap was a rare achievement (i.e. Saudi Aramco... which is sometimes not even Top 10 anymore!): now there are three companies that are solid $4T$+ marketcaps, sometimes flirting into $5T$ (a few days at a time).
Inflation is the only answer, from that same top-of-the-K POV. Gotta keep them assets 'tected, ya'll.
Or track gold. Artwork. Land. Anything Real, legally speaking (except soon/now: perhaps not SFH housing) #WhateverDawg
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If you've been saving up for a house: right now you should really check out Michael Bordenaro's recent video on the topic of "Corporate Landlords shedding rental homes" [1] – I have no affiliation other than enjoying his almost-daily audio commentary – he is a former realtor (I went to college he sold houses) and his topics are extremely observant and varried.
Michael's self-shot walks helped inspire me to get in better shape (e.g. lose "dead parent" weight, lower BP, &c) and rejoin "the tanktop generation" (he is a bit younger than me, but I never grew up so...). |-30lbs|-12kg~|
Save until you can put down at least 20% (to avoid additional insurance fees), because in a-fifth of US states insurance is already going to cost more than property taxes (which is ridiculous)! [recalled from video, below; double-check my aging flesh memorybanks]. One in twelve SFHs are NOT insured, including mine (a rental); I also do not have personal rental insurance, as tenant, because I. do. not. care. #Mom&Pop
[1] <https://www.youtube.com/watch?v=0n8trvfUTZs> spec: 5m40s (for a list of companies net-shedding)
But the EU probably wont do that for monetary reasons. First, the EU doesnt really mind too much if the Euro drops in value a bit since it somewhat helps domestic industry. Second, the Euro seems to have strengthed against the dollar, not weakened since this was done.
I think if there was a coordinated selling off of US treasuries by Euro countries, it'd be to force a political concession from the USA, not to defend the Euro's value.
For some context here, it's worth mentioning the Yen carry trade [2]. This is actually relevant because it allegedly underpins the AI investment boom [3] and the Yen appreciating is a real problem for investors who borrowed Yen to invest, particularly if it's into a bubble that may well pop. It's a double shammy.
I'm wondering if this is going to be another George Soros moment. Soros famously broke the Bank of England who were trying to maintain a rate for the pound [4]. If massive AI investment is fueled on the Yen then there's a pretty big icentive to break the Yen by investors. This administration would normally be on board with that sort of thing (and actively profit from it) so it's not yet clear to me what's going on.
[1]: https://news.ycombinator.com/item?id=49119122
[2]: https://www.economicshelp.org/blog/glossary/yen-carry-trade/
[3]: https://www.businessinsider.com/yen-carry-trade-unwind-stock...
[4]: https://www.investopedia.com/ask/answers/08/george-soros-ban...
The yen carry trade is when you borrow yen (at ~0% interest), convert to dollars, buy assets in dollars, those assets hopefully appreciate, but they don't have to appreciate all that much because you were able to buy them on leverage with no interest.
But the other way to win on that trade is if the yen becomes cheaper while you were holding dollar-based assets. So those who are currently in the carry trade (that is, have borrowed yen) would not mind if the yen suddenly became dramatically cheaper.
I think that's a longer form of what the parent is saying.