George Saravelos, head of global foreign exchange research at Deutsche Bank, said in a report that the joint intervention of the US and Japan last month to support the yen was not only “ineffective”, but also “counterproductive,” because if the authorities did not take action, the yen might rise even more. He wrote, “By clearly encouraging the Japanese authorities to use the Federal Reserve's FIMA mechanism, the government has sent a signal that the US does not want Japan to directly sell US Treasury bonds. It is unrealistic to expect Japan to borrow US dollar cash at a punitive FIMA interest rate to carry out the intervention, so the threshold for further intervention has been raised,” Saravelos also said. “Second, America's participation in the foreign exchange market cannot actually be considered an intervention in the real sense of the word. US Treasury Secretary Bessent called it a 'reserve reallocation' operation, and according to our estimates of changes in the weekly valuation of the SOMA balance sheet, the Federal Reserve did not contribute to this intervention at all; it is not a historical practice where each bears half.” Deutsche Bank also pointed out that the Japanese economy has no debt problems. The bank said, “For a country with such a large net foreign asset position, much of it is still held by the government, and debt is not a problem.” The bank said: “If the Bank of Japan starts to raise interest rates as quickly as a 'normal' central bank so that the yen is no longer a low-yield currency, then the yen will eventually appreciate. At the end of the day, the question is whether the Japanese government is willing to support this outcome”
Zhitongcaijing · 1d ago
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George Saravelos, head of global foreign exchange research at Deutsche Bank, said in a report that the joint intervention of the US and Japan last month to support the yen was not only “ineffective”, but also “counterproductive,” because if the authorities did not take action, the yen might rise even more. He wrote, “By clearly encouraging the Japanese authorities to use the Federal Reserve's FIMA mechanism, the government has sent a signal that the US does not want Japan to directly sell US Treasury bonds. It is unrealistic to expect Japan to borrow US dollar cash at a punitive FIMA interest rate to carry out the intervention, so the threshold for further intervention has been raised,” Saravelos also said. “Second, America's participation in the foreign exchange market cannot actually be considered an intervention in the real sense of the word. US Treasury Secretary Bessent called it a 'reserve reallocation' operation, and according to our estimates of changes in the weekly valuation of the SOMA balance sheet, the Federal Reserve did not contribute to this intervention at all; it is not a historical practice where each bears half.” Deutsche Bank also pointed out that the Japanese economy has no debt problems. The bank said, “For a country with such a large net foreign asset position, much of it is still held by the government, and debt is not a problem.” The bank said: “If the Bank of Japan starts to raise interest rates as quickly as a 'normal' central bank so that the yen is no longer a low-yield currency, then the yen will eventually appreciate. At the end of the day, the question is whether the Japanese government is willing to support this outcome”
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