US Treasury Secretary Bessent supports Japan using one of the Federal Reserve's financing instruments to boost the yen. This move helps prevent excessive sell-offs from impacting the US bond market. Foreign and international monetary authorities' repurchase mechanisms allow overseas central banks to use their US Treasury bonds as collateral to obtain dollar liquidity without having to sell US bonds in the open market to raise funds. The mechanism was introduced during the 2020 pandemic to allow counterparties to obtain liquidity while avoiding excessive disturbance of the US bond market. Japan's Finance Minister Katayama Satsuki said in a statement that Japan bought yen last Friday and will use this mechanism in the future. Bezent posted in support of the initiative and would encourage scaling up the mechanism. According to the latest data from the US Treasury Department, Japan holds more than 1.1 trillion US dollars of US Treasury bonds, making it the largest overseas US debt holder. Given that the Federal Reserve's ability to fight inflation and concerns raised by the US fiscal outlook have put pressure on the US bond market, Washington is wary of Japan's intervention in the foreign exchange market by selling bonds to raise funds. Philip McNicholas, an Asian sovereign debt strategist at Robeco in Singapore, said that given the current bond market environment, Japan's use of this mechanism is more preferable for the US. He said that Japan's Ministry of Finance was able to establish a net short position without directly selling US bonds and boost demand for yen, thereby limiting the impact on the US treasury bond market. The 30-year US Treasury yield closed at its highest point in 19 years in July, and the 10-year benchmark US Treasury yield also reached the highest level since the beginning of last year. On Monday, fueled by optimism about the US-Iran peace negotiations, oil prices fell, and US bond yields declined across the board. According to the Federal Reserve website documents, the daily usage limit for each counterparty under the repurchase mechanism is 60 billion US dollars, but the Federal Reserve's subsidiary committee can adjust this amount. “If Japan and the US want to minimize the impact on the US bond market when supporting the yen, then this mechanism is the obvious choice,” said Homin Lee, senior macro strategist at Lombard Odier in Singapore. “Japan doesn't use this tool, but if Japan wants to continue interfering in the foreign exchange market for a period of time, the logic of using this mechanism is very clear.”
Zhitongcaijing · 2d ago
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US Treasury Secretary Bessent supports Japan using one of the Federal Reserve's financing instruments to boost the yen. This move helps prevent excessive sell-offs from impacting the US bond market. Foreign and international monetary authorities' repurchase mechanisms allow overseas central banks to use their US Treasury bonds as collateral to obtain dollar liquidity without having to sell US bonds in the open market to raise funds. The mechanism was introduced during the 2020 pandemic to allow counterparties to obtain liquidity while avoiding excessive disturbance of the US bond market. Japan's Finance Minister Katayama Satsuki said in a statement that Japan bought yen last Friday and will use this mechanism in the future. Bezent posted in support of the initiative and would encourage scaling up the mechanism. According to the latest data from the US Treasury Department, Japan holds more than 1.1 trillion US dollars of US Treasury bonds, making it the largest overseas US debt holder. Given that the Federal Reserve's ability to fight inflation and concerns raised by the US fiscal outlook have put pressure on the US bond market, Washington is wary of Japan's intervention in the foreign exchange market by selling bonds to raise funds. Philip McNicholas, an Asian sovereign debt strategist at Robeco in Singapore, said that given the current bond market environment, Japan's use of this mechanism is more preferable for the US. He said that Japan's Ministry of Finance was able to establish a net short position without directly selling US bonds and boost demand for yen, thereby limiting the impact on the US treasury bond market. The 30-year US Treasury yield closed at its highest point in 19 years in July, and the 10-year benchmark US Treasury yield also reached the highest level since the beginning of last year. On Monday, fueled by optimism about the US-Iran peace negotiations, oil prices fell, and US bond yields declined across the board. According to the Federal Reserve website documents, the daily usage limit for each counterparty under the repurchase mechanism is 60 billion US dollars, but the Federal Reserve's subsidiary committee can adjust this amount. “If Japan and the US want to minimize the impact on the US bond market when supporting the yen, then this mechanism is the obvious choice,” said Homin Lee, senior macro strategist at Lombard Odier in Singapore. “Japan doesn't use this tool, but if Japan wants to continue interfering in the foreign exchange market for a period of time, the logic of using this mechanism is very clear.”
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