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.
The yields aren't even that high. They were much higher in the past.
...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.
https://www.stonex.com/en-us/insights/the-yen-carry-trade-is...
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.
I think so many in power now, including lots of people in tech, have bonkers, cartoonish views of the world that just don't map to the reality and complexities of the 21st century. Scary stuff.
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.
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.
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.
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.
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.
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.
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.
No. The yield is determined by what the buyers demand. The Fed can distort the market by buying treasures themselves. But that is not near infinite power. It fuels inflation and reduces credibility -> investors demand higher yields anyway. It can use other tricks (like 'leaked' Besson's memo), but those also have their limits.
Your mistake is misunderstanding the power central banks have in managing these assets. The Fed can make the yield whatever it wants. The Fed potentially has reasons to let the yield be high but it's a choice.
> The Fed can distort the market by buying treasures themselves
What you call "distorting the market" the Fed would call something like "setting the parameters of the market".
Regardless if you're ideologically opposed to the Fed actively managing the market for treasuries. The fact is that they can, and they do.
> inflation and reduces credibility
So you admit that the Fed has this power but they just choose not to exercise it? In any case, the Treasury's actions "fuels inflation" every bit as much as any intervention the Fed might take in the bond market.
There is no point repeating what maxglute wrote above.
> So you admit that the Fed has this power but they just choose not to exercise it?
Fed has the ability to buy as much treasuries as it wants. However, the power of that ability is limited, especially in situation like we are now, with rising inflation, high debt and dubious US credibility.
Where did I say that the treasure had to borrow money?
It creates money out of thin air. What I implied is that creating too much money raises inflation and reduces its credibility, i.e. it can't do it in an unlimited manner.
The Treasury does not have the ability to "create money out of thin air." That is not how any of this works. The treasury, when it buys something, does so either by using tax receipts or by issuing bonds. The tax receipts are spent. The Treasury is issuing bonds.
The Fed could create money and use it to buy Treasury bonds on the open market, as part of its Open Market Activities to manage interest rates (which is exactly what it would do if the Japanese sold US treasuries)
Ironically, the law actually forbids the Fed from buying bonds directly from the treasury, so the treasury has to float the bonds and then have the Fed buy them off the open market if it chooses to do so. So again you can see how insane this move by the US Treasury is.
To respond to your previous post:
I (naively?) thought that the Treasury had some Euro reserves lying around (like other central banks have USD reserves) and used those, not issuing new USD debt.
I agree that issuing new USD debt just to avoid the need for Japan to sell its USD debt (treasuries) would not reduce the pressure on USD debt.
Most probably it was mostly psychological market manipulation ('leaked' notes).
Where PRC comes in is they have large amount of USD reserves (and shadow USD from trade) used to parallel lend to governments (BRI etc) which replaces marginal FED USD demand with recycled PRC USD supply, which forces FEDS to find more market buyers, by increasing rates further to clear auctions. Every USD from PRC reserves that goes towards bilateral lending is one not bought from FED that has be be replaced by market buyer at higher yields. Net effect is PRC has functional influence over US treasury yield. Now fed has infinite power to move slider to compete on yield... but in practice that slider can only go the direction that makes US debt servicing more onerous. PRC leverage (JP limited geopolitically) = FED has little power to reverse debt trap but some power to go broke faster. Some power because at some point of $$$ brrrt printing buyers will realize US may not be able to honor commitments and price risk accordingly.
- the fiscal position (the amount of debt the US owes) does not change by Japan selling the US treasures to other (non US) party
- but the party that bought the treasures from Japan will not be buying them from US, hence diminishing the demand for them, therefore raising the yield
* Instead the US Treasury intervened to protect the Yen, allowing Japan to maintain its reserves while there still ended up being balance sheet consequences for the US
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.
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)
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.
However, they do agree on how they don't want it to look.
The rampant corruption, state brutality, and criminality of MAGA is unpopular across the board.
See also: claims that Sanders was “too angry” (lmao), the “Dean scream” smear campaign, characterizing Clinton as a cackling witch, etc.
For example, Harris ran on a positivity campaign and lost.
There are just way, way too many dimensions to modern politics to resolve into something like this – with the exception of the anti-MAGA sentiment which is widespread, highly salient, and highly motivating. Obviously that's fleeting and so in 16 years it will probably be wrong to say "anti-MAGA candidates always win, just look at 2028!"
(FWIW the Dems had an internal report after ‘24 that mostly agreed with me.)
The Dems' 2024 report literally argues the opposite, over and over. It argues that Democrats did not engage in enough negative campaigning against Trump.
> LESSONS FROM THE STATE CAMPAIGNS 1. Going Negative Works (Especially if Voters Know You).
> The Trump campaign and supportive Super PACs went full throttle against Vice President Harris, but there was not sufficient or similar negative firepower directed at Trump by Democrats.
> Voting is a choice. And negative messaging needs to be a part of the story as choices are framed for voters.
> The Harris campaign appears to have relied on Trump being unacceptable rather than building an affirmative case for Harris. Base voters needed reasons to vote FOR Harris as well as against Trump. Without an effective contrast with a difficult (and unaffordable) status quo, the obvious contrast with Trump was not a sufficient motivator, especially since there was not sufficient negative messaging about how horrible Trump was (and still is) for and to most Americans.
> Define lanes for communications ecosystem. Who will carry contrast and negative messaging so candidates go high as other entities go low. This was a major failing in 2024, and it cannot be repeated. Set the lanes and hold organizations accountable.
I misremembered this and a quick search to remind myself wasn’t adequate. Given the disagreement around the report, I don’t think it serves as a good source either way.
Digging a little into it, the research seems to indicate that there’s not adequate evidence to draw any conclusions: https://link.springer.com/article/10.1057/s41253-019-00084-8. Although there’s some evidence that negativity demobilizes voters and degrades democracy, which you probably don’t want. But I don’t really care who wins anyway, I’m not sure why I’m even engaging here. I guess I just want the 2008 Democratic party back.
The democrats are so far from the 2008 version that you don't care if they lose? That Trump's activities are as bad as Biden's?
2008 Dems had a large “liberaltarian” presence, which isn’t perfectly aligned with my views, but it was close enough that I was often in favor of their policies. Current Dems just want the war machine to focus more on Russia while sticking it to red states at home.
Antiwar sentiment in the party died after the entry of “CIA Democrats” like Spanberger, who now have outsized influence within the party. I don’t see much good coming out of a Dem victory until they are expelled.
Maybe I'm just some war hungry lunatic, but I actually think that when the US tells a country it will defend its sovereignty in exchange for it not having nuclear weapons, it's very important that we honor those commitments.
That's probably because I prefer deterrence, and intermittent war required to assert deterrence, more than I like the idea of every nation in a race to build nuclear weapons and then every neighbor doing scrambling to prevent nuclearization. Basically a warmonger then ¯\_(ツ)_/¯
As I said, I’m not a fan of the current party, and I hope that the right continues to degrade state capacity until neither side has much left to work with.
I don't understand what my prior comment has to do with any party at all. It was a direct response to your implicit claim about the US's obligations to Ukraine, and therefore to the rest of its security umbrella.
As to how it has to do with the party, we were discussing the Democratic Party, Russia was a brief aside. But I do find that people’s position on the Russia/Ukraine conflict typically tends to say a lot about their other positions.
Are you referring to sanctuary policies which just say a locality won't expend local resources to enforce federal immigration law?
Not sure what you could possibly be referring to here.
You're aware that actual open borders is an extremely, extremely fringe position, right? The borders between US states are "open borders." Support for open international borders is unbelievably rare, across the entire political spectrum.
I don’t really feel like rehashing the open borders motte and bailey that always happens on the internet, yes most Dems don’t support actual open borders but the policies they push for are equivalent. If there’s one thing Americans can agree on, it’s that they like having an underpaid slave caste, even if Republicans do pretend that they are against it.
Another handful of states across the red/blue gamut, but actually still red-bent, are pushing for social media restrictions.
What on earth are you talking about? Concretely what are these blue state laws that are so pervasive that you can derive the "mainstream position" from them?
Also why would Berkeley, California have any obligation or interest in enforcing border controls when those are 1) federal laws and 2) the border is 600 miles away?
Yes, red states have their own age verification laws—I never said they didn’t. Hence why I’m not friendly towards either party.
Constant nitpicking and gaslighting also seem to be typical from modern Dems.
Sheesh, that's some goofy stuff haha.
... yeah I'd say punishing the people can make them vote for us, or at least not vote for not-us, which is basically equivalent.
I do have a lot of faith in democracy, so I'm optimistic that most people can be persuaded to accept his punishment if the argument is presented well. I'm sure some number of people who called for him to murder people will pretend they were never on his side, and that'll frustrate me to no end, but such is life.
(The exception is right wing politicians, who seem to be allowed to win elections while openly calling for punishment of their opponents. Call it a quirk of the US electorate, or a flaw in human nature, who knows. It is what it is.)
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.
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.
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.
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