I think the 2.7% figure is useful, but it may understate the relevant transmission mechanism. The question is not whether Japan owns enough Treasuries to mechanically determine U.S. yields. It is whether a disorderly yen move changes the marginal allocation of global capital.
Exchange rates, term premia and Treasury yields are set at the margin, not by proportional ownership of the outstanding stock. A sharp yen depreciation can trigger carry-trade deleveraging, FX-hedging adjustments, repatriation incentives and correlated portfolio rebalancing across Japanese banks, insurers and global leveraged investors. Those flows can affect Treasury liquidity and term premia even if Japan’s total Treasury holdings are only a small percentage of the market.
That said, I agree with the broader conclusion that protecting U.S. yields was probably not the primary objective. The stronger explanation is that Washington viewed the yen move as potentially disorderly, with spillovers across JGBs, Asian FX and global risk markets. In that framework, Treasury-market stability is one transmission channel of concern, rather than the underlying reason for intervention.
I think it‘s about the relative development of the term-premia in the US and Japan i.e. the expected or perceived fiscal policy which has been the latest driver in JPY weakness
Not suggesting it, but if the BOJ really wanted the Yen to appreciate they could still do it by overpowering other factors with large interest rate hikes right? Or is this channel for some reason totally ineffective?
I agree regarding the motivations of Bessent. But in his defense this was the playbook in 1985 post Plaza and it worked. Probably too well as we subsequently experienced. I get it regarding PPP. Millions of visitors are experiencing the joys of dirt cheap Japan. Even Bloomberg jumped on board this week with a silly katsu curry index. This week 2000 grocery items are set to increase by 15%. Robin Brooks frequently posts an effective policy would be for the BOJ to stop buying JGBs and let rates find the market (at risk of fiscal crisis). Perhaps an effective strategy to keep JPY from blowing thru 170 is to throw everything at it while working on the economy and stopping PRC/Taiwan from taking all the value in almost every important market. Oh, and by the way, once food consumption tax goes from 8% to 1% it’s not going back to 8%, no matter promises made now.
I think the 2.7% figure is useful, but it may understate the relevant transmission mechanism. The question is not whether Japan owns enough Treasuries to mechanically determine U.S. yields. It is whether a disorderly yen move changes the marginal allocation of global capital.
Exchange rates, term premia and Treasury yields are set at the margin, not by proportional ownership of the outstanding stock. A sharp yen depreciation can trigger carry-trade deleveraging, FX-hedging adjustments, repatriation incentives and correlated portfolio rebalancing across Japanese banks, insurers and global leveraged investors. Those flows can affect Treasury liquidity and term premia even if Japan’s total Treasury holdings are only a small percentage of the market.
That said, I agree with the broader conclusion that protecting U.S. yields was probably not the primary objective. The stronger explanation is that Washington viewed the yen move as potentially disorderly, with spillovers across JGBs, Asian FX and global risk markets. In that framework, Treasury-market stability is one transmission channel of concern, rather than the underlying reason for intervention.
I think it‘s about the relative development of the term-premia in the US and Japan i.e. the expected or perceived fiscal policy which has been the latest driver in JPY weakness
Not suggesting it, but if the BOJ really wanted the Yen to appreciate they could still do it by overpowering other factors with large interest rate hikes right? Or is this channel for some reason totally ineffective?
I agree regarding the motivations of Bessent. But in his defense this was the playbook in 1985 post Plaza and it worked. Probably too well as we subsequently experienced. I get it regarding PPP. Millions of visitors are experiencing the joys of dirt cheap Japan. Even Bloomberg jumped on board this week with a silly katsu curry index. This week 2000 grocery items are set to increase by 15%. Robin Brooks frequently posts an effective policy would be for the BOJ to stop buying JGBs and let rates find the market (at risk of fiscal crisis). Perhaps an effective strategy to keep JPY from blowing thru 170 is to throw everything at it while working on the economy and stopping PRC/Taiwan from taking all the value in almost every important market. Oh, and by the way, once food consumption tax goes from 8% to 1% it’s not going back to 8%, no matter promises made now.