Evercore ISI said that a rarely used Federal Reserve liquidity tool may prevent Japan from supporting the yen by selling off US Treasury bonds, but long-term reliance on this instrument may encourage the market to test the determination of the US and Japan. A “foreign and international monetary authority buyback tool” allows overseas institutions to use their US Treasury bonds as collateral to obtain dollars, thereby avoiding selling bonds on the open market to raise cash. The instrument was established during the COVID-19 pandemic in 2020 to allow counterparties to obtain liquidity without seriously disrupting the US bond market, then converted to a permanent instrument in July 2021.

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