WSJ: Unprecedented Joint Support for Yen Financing by US and Japan
The Wall Street Journal points out that the joint action by the US and Japan to support the yen is unusual, with a financing method that is unprecedented, further injecting liquidity while the US economy and market liquidity are already ample.
This intervention provides Japan with US dollars through the Federal Reserve's FIMA repo facility, avoiding the need for Japan to sell US Treasuries for financing, while the US Treasury sells euros to buy yen. This is the first joint US-Japan intervention to buy yen in decades, aimed at curbing the yen's decline to a 40-year low.
This is a bilateral currency coordination event, with funds flowing to yen purchases through central bank repo channels, increasing liquidity in the dollar system. Japanese monetary authorities benefit from external support and stable US Treasury holdings, while the US market faces pressure from additional liquidity injections, and yen short positions are at risk of intervention.
Source: Public Information
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The last joint intervention by the US and Japan dates back to the Asian financial crisis in 1998 to support the yen, or the reverse operation after the 2011 earthquake. The US's active participation and use of the FIMA facility established during the pandemic indicate that concerns over Japan's potential selling of US Treasuries impacting the Treasury market take precedence over traditional currency policy coordination.
In terms of capital flow, the US indirectly provides dollar liquidity to Japan by expanding the repo limit, avoiding direct dollar sales or forcing Japan to reduce its Treasury holdings. The motivation is to protect the stability of the US Treasury market while responding to currency depreciation pressures from allies, forming a new model of "liquidity swap + intervention."
Similar to the expansion of dollar swap lines during the pandemic in 2020, we are currently in a phase of bilateral intervention prioritizing the stability of the US Treasury market.
Essentially, this represents a regulatory change: central bank liquidity tools are being repurposed for foreign exchange intervention financing, transforming facilities originally meant to address dollar shortages into channels supporting allied currencies, further expanding in an already ample liquidity environment.
ABAB News · Cognitive Law
- The true cost of intervention is hidden in the financing channels.
- The currency crisis of allies first impacts the creditor country's bond market.
- Once liquidity tools are repurposed, they are no longer neutral.