🦔The US Treasury bought Japanese yen on Friday for the first time since 2011. But it didn't sell dollars to do it. The NY Fed sold euros and bought yen on behalf of the Treasury through Goldman Sachs and Morgan Stanley, according to the Financial Times. A Reuters photographer caught Treasury Secretary Bessent's notepad at a Camp David cabinet meeting. It read "To Do Buy Japanese Yen $5-10 bil." Japan spent $58.97 billion in a single day to defend its currency, the largest intervention in its history. In January, Bessent refused to help.
My Take
Japan holds $1.19 trillion in US Treasury bonds, the largest foreign holder on earth. When the yen falls this far, Japan sells those bonds to raise dollars and defend its currency. Every bond Japan sells adds supply to the US bond market and pushes yields higher. The 30-year yield hit 5.23% this week, highest since 2007. Your mortgage, car loan, and credit card APR all follow Treasury yields. The US sold euros to buy yen because if it sold dollars instead, that would weaken the dollar, which goes against US policy. So the euro took the hit and Europe didn't get a vote.
Bessent refused to touch the yen six months ago. Friday he bought it with euros through Goldman and Morgan Stanley. Japan also has access to the Fed's FIMA Repo Facility, which lets it borrow dollars against its Treasury holdings instead of outright sales. That could keep over a trillion in US bonds off the open market and hold yields where they are. Japan and the US may announce a joint currency policy as early as next week. A currency crisis in Tokyo just became a US fiscal priority because the chain from a weak yen to a higher American mortgage payment runs straight through the Treasury bond market.
Hedgie🤗