Bessent is Generating Treasury Demand for Japan to Sell Into: The Yen Bull Case (hypothesis) 🏛️ 💹💴 I’m surprised more people haven’t pointed out the timing of Treasury buyback increase with the Yen intervention. Rough Timeline - Early July: Katayama calls for Japanese insurers to buy more domestic bonds (read: not Treasuries) Late July: US-Japan ‘joint’ intervention August: Yen slides weaker post-intervention Late August: Bessent announces new buybacks, soon after calls on Japan to raise rates September: Another intervention (NOT officially joint), and we learn Japan foreign reserves fell ~$80B (!) over the past month … The point is this: - Japan doesn’t want the Yen to keep weakening - Japan doesn’t want the long-end yield spike to continue - But, Japan also doesn’t want to hike rates ‘too’ fast and cause a slowdown So the plausible thing to do is to have asset managers (pensions, etc) sell long-end Treasuries (which are largely unhedged) and buy long-end JGBs. Boom, that solves all of your problems… but the only issue is you piss off the USA. So, Bessent knows this. He sees the writing on the wall and he tries to actively get the Yen stronger in late July. Then the market fights it, dollar/yen bottoms the first day of August and a few weeks later he’s like “actually you guys need to hike” while boosting the buyback the same week. The conclusion: Bessent now needs to generate Treasury demand that Japan can sell into. If there isn’t demand in a given time frame, he needs a lever to pull and that is now the Treasury buyback increase (which likely on purpose has flexibility in how much it buys). I think it’s reasonable to expect size/timing of the enlarged buybacks to be roughly correlated with Japan foreign reserve sales. (Directionally and in timing, not 1 for 1 in size, again he just needs to scare shorts at the right time to generate demand.) Even if this is correct, it is hard to have a rates view from this. - Being bullish Treasuries you are fighting sales from the largest foreign holder. - Being bearish Treasuries means you are fighting a hedge fund manager who is also the Treasury secretary. The only trade I see here is to be bullish the Yen and buy the dips. It is what both governments want - and that’s what matters. $TLT $USDJPY USD/JPY