MUFG: U.S. Support for Japan’s Currency Stabilization Could Ease Treasury Selling Pressure
Mitsubishi UFJ said U.S. support for Japan’s efforts to stabilize the yen should help limit selling of U.S. Treasuries, reduce the impact on the bond market and ultimately lessen the scale of action required. “The United States is concerned that if Japan’s continued intervention in the foreign-exchange market involves the direct sale of U.S. Treasuries, it could disrupt the Treasury market,” said Lee Hardman, a foreign-exchange analyst at Mitsubishi UFJ. He said Japan could use the Federal Reserve’s Foreign and International Monetary Authorities repo facility, known as FIMA. Hardman wrote that if coordinated intervention were more effective, “this could mean that a smaller amount of intervention would ultimately be required, reducing the need to sell U.S. Treasuries.” He also said that choosing to sell euros rather than dollars indicates that the United States “does not want to send a signal that it hopes for a more broad-based weakening of the dollar” while U.S. inflation remains well above target. Hardman expects the possibility of further coordinated intervention, along with a faster pace of interest-rate increases by the Bank of Japan, to support the yen and curb speculative short positions in the currency. Japan’s finance minister could announce as early as Monday that Japan and the United States are coordinating a response to the yen’s weakness.
“The United States is concerned that if Japan’s continued intervention in the foreign-exchange market involves the direct sale of U.S. Treasuries, it could disrupt the Treasury market,” said Lee Hardman, a foreign-exchange analyst at Mitsubishi UFJ. He said Japan could use the Federal Reserve’s Foreign and International Monetary Authorities repo facility, known as FIMA.
Hardman wrote that if coordinated intervention were more effective, “this could mean that a smaller amount of intervention would ultimately be required, reducing the need to sell U.S. Treasuries.”
He also said that choosing to sell euros rather than dollars indicates that the United States “does not want to send a signal that it hopes for a more broad-based weakening of the dollar” while U.S. inflation remains well above target.
Hardman expects the possibility of further coordinated intervention, along with a faster pace of interest-rate increases by the Bank of Japan, to support the yen and curb speculative short positions in the currency.
Japan’s finance minister could announce as early as Monday that Japan and the United States are coordinating a response to the yen’s weakness.