- The US and Japan conducted their first joint yen intervention since the late 1990s, potentially setting a precedent for future currency moves.
- The intervention could boost global dollar liquidity through the FIMA repo facility, which allows Japan to access dollars without selling US Treasuries.
- The unwinding of the yen carry trade, signaled by rising Japanese bond yields, poses both risks and opportunities for Bitcoin and risk assets.
The US and Japan conducted a rare joint intervention to prop up the yen last week, marking the first such coordination since 1998 as the currency slid to 164 per dollar. The New York Fed sold euros on behalf of the US Treasury using the Exchange Stabilization Fund.
Treasury Secretary Scott Bessent publicly emphasized his meeting with Bank of Japan Governor Kazuo Ueda at the upcoming G20 gathering, writing that Japan’s economy continues to perform well under a strong commitment to monetary and financial stability. Bessent also called for the FIMA Repo Facility to be expanded, describing it as an important backstop for dollar liquidity.
The Bank of Japan is one of the few central banks with access to the Federal Reserve’s FIMA facility, which provides dollar liquidity without requiring the sale of US Treasuries. This is critical because Japan is the largest holder of Treasuries, and accelerated sales could push up yields, increasing borrowing costs for the US government.
Economist Mohamed El-Erian argued that Washington has now signed onto a strategy whose success hinges on comprehensive policy alignment among the Bank of Japan, the Ministry of Finance, and the Prime Minister’s Office. Meanwhile, Japanese two-year bond yields rose above 1.57%, signaling an end to low-interest-rate conditions that have fueled the yen carry trade.
This shift could ultimately benefit Bitcoin and risk assets as investors repatriate capital to take advantage of changing domestic conditions.
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