Quick Read – Japan’s yen defense requires selling between $35 billion and $50 billion in Treasuries, adding forced supply to a bond market already near 12-month yield highs. – The FEMA repo lets Tokyo pledge Treasuries as dollar-borrowing collateral, enabling intervention…
thout physically liquidating bond holdings. – Loo sees dollar-yen peaked near 164, with 155 as the next key watch level as coordinated intervention flips the yen pain trade direction. – Masahiko Loo, Senior Fixed Income Strategist at State Street Investment Management, framed last week’s US-Japan currency intervention as a turning point in how policymakers can combat yen weakness without destabilizing the world’s largest bond market. Speaking on Bloomberg on August 3, Loo argued that coordination between Tokyo and Washington signals a deliberate shift away from selling U.S
Treasuries to prop up the Japanese yen. USD/JPY closed at 163.38 on July 29 before sliding to 157.57 on July 31. Because a decline in this exchange rate means the yen is strengthening against the dollar, the yen has gained further as of August 3, with USD/JPY now below 157.
Why Japan’s Currency Defense Threatened the US Treasury Market Loo explained that the big fear is that Japan will sell US Treasuries to rightsize its currency: “Whenever it intervenes, what Japan does is they have to sell something to intervene and buy yen and prop up yen… and sell US dollars. And the fastest way is to sell US Treasuries. I think that creates some funding problem in the US market,” he said.