Japan is losing the fight to save its Currency they have been aggressively Selling dollars to buy back the Yen but Are still Crashing Down to Earth their Currency intervention is failing now Japan just did another intervention Burning away a record 37 billion dollars Last Friday and yes it did Spike the Year now by two percent but this Strategy is not going to work for the Long term remember they tried to Intervene in September for the first Time but the Yen kept crashing down it Is still down over 22 percent Year-to-date and not much has changed Japan is trying to play a waiting game With the Federal Reserve they are trying To Outlast the FED with the dollar Reserves but time is not on their side The federal reserve's number one goal is To crush inflation by destroying demand They're going to continue hiking rates And keeping them high their dual mandate Tells them that they can keep going Because unemployment is still low but Inflation is out of control the markets Are really priced in the 75 business Points height for November and the bank Of Japan will have to keep burning Through their reserves to of the year But Japan isn't just dumping dollars They're also drawing down their U.S Treasury Holdings we have reports of Japan dumping their treasuries to fund
Their currency intervention they are Burning two dollar cash like no tomorrow They spend nearly 20 billion dollars in September guys and 37 billion dollars Last week to defend the Yen but it is Not working we can see that Japan's Treasury Holdings have fallen by three Percent in August as bond prices Continue to crash thanks to Rising rates We can see their Holdings in Black drop Below 1.2 trillion dollars a 10 drop From their November high of 1.33 Trillion now it makes sense that Japan Is dumping its U.S bonds because they Need the cash right rates are still Going to go up and bond values are going To continue coming down over the next Few months so if they fund run the Federal Reserve and they liquidate their Holdings now they can retain more value Today than tomorrow however Japan's Currency intervention isn't going to Work in the long term and the yen is Likely going to crash even further down And here's the problem the bank of Japan Is trying to do the impossible they are Trying to stimulate their economy during A period of rising rates while also Trying to protect their currency from Devaluation by doing currency Interventions right however that is not Going to work you cannot save both the Ball market and the value of your Currency at the same time you will need
To sacrifice one for the other now what Japan has been doing over the past Decade since 2013 is to continually Print money to cause higher inflation to Stimulate the economy yes they've kept Born yields down but the economy is Still stagnating their easing hasn't Been working the bank of Japan harmed Their commercial Banks full of money Right a flash full of cash but the banks Weren't loaning out the cash and the Local Japanese people weren't going out To borrow and spend either they rather Save money but then 2022 came and the FED started to hike raids and Japan's Inflation started to rise now inflation Is now three percent in Japan the Highest has ever been in 1999 and a big Part of it comes from rising commodity Prices and energy as well but Japan has Another big problem and that is Contributing to Soaring prices and that Is a currency depreciation yes Japan is A huge export of products but also a net Important of raw materials especially When it comes to food and fuel and all Those are priced in US Dollars and as The Yen continues to create up inflation In Japan it's going to continue to rise And it's not because Japan has a tsunami Of cash sloshing around but because the Yen is extremely weak and now they have To pay more for Commodities and this is The problem of trying to solve your
Economic problems through monetary Policy instead of tackling the Fundamental issues and one of these Issues is Japan's aging population and Low birth rate now by 2045 the majority Of people in Japan are going to be Nearly 50 years and older that is Destroying their productivity and local Consumer base and no amount of money Printing and keeping rates low it's Going to solve this problem for the long Term however the boj is committed to Keeping rates low so that the government Can keep borrowing money at low interest Rates but here's the daily cycle of Currency devaluation Japan has trapped Itself in we can see that the yields on The Japanese bonds the jgb's their joke The yield on the five year is almost Zero and a ten year is not even 25 basis Points there's no point putting your Money Japanese debt when the yield is so Low and the bank of Japan is committed To keeping inflation high in fact they Want even higher inflation and that's Why investors and funds they are dumping Japanese Bonds in record amounts they Know the boj has lost their minds and It's time to hit for the exits we can See over 6 trillion yen of Bonds were Sold in September alone making it the Biggest drawdown over the last 20 years And guess where the money is flowing Into they are running to U.S treasuries
According to Bloomberg Japanese funds Were net buyers of 565 billion yen of U.S Sovereign bonds so money is leaving Japanese bonds and investors are selling The Yen for dollars in order to buy Treasuries and this is where the Doom Loop comes in because investors are Living Japanese bonds the yield should Spike but the boj wants to keep them low So what does this mean a whole lot of Money printing to force the use down now The money supply has expanded even Further now investors see this and They're gonna say hell no and they're Beginning to sell off their Yen even Further causing depreciation to get even Worse if you take a look at the use on a 10-year treasury versus the 10-year jgb We can see a huge differential of over Four percent and this is why the yen is Getting devalued the bank of Japan's Message to investors is clear and the Federal reserve's intentions are also Crystal Clear Japan is going to keep Printing money to keep use low while the Federal Reserve is going to keep hiking Rates to wrestle down inflation or until Something breaks and this is why Japan's Currency intervention is going to fail In the long term there's no fundamental Case to hold the Yen there's no organic Demand for it Japan might be able to Keep selling their results for six Months or even up to a year to defend
The Yen but eventually they will fail And Japan will be left in a very Dangerous position they would have Exhausted a ton of their dollar reserves And they would have put it up a bunch of Yen to keep their born use down and what Do you think this will cause a further Capital flight away from the Japanese Yen they'll be back to square one and in A worse position because their dollar Reserves are now depleted and if there's Another Supply shock that causes Commodities to spike maybe it's the Ukraine war escalating even further China invading Taiwan or maybe OPEC Cutting production then Japan is screwed And their inflation will get out of Control and it's not like we have not Seen this before we have seen what Happened in the UK with less trust who Tried to stimulate growth protects cuts And deficit spending investors began Leaving the pound at the British Guild Market broke and the bank of England had To intervene with QE and the same thing Is happening with Japan but they are Trying to save both their bond market And currency at the same time this is Going to be a train wreck they don't Have unlimited reserves to sell dollars And buy back the Yen now what if the Federal Reserve keeps hiking rates for The next six months and then they keep Rates high for the next year or so does
Japan have enough reserves to defend the Yen for 18 months straight you know at Their current reserves of 1.2 trillion Dollars they have enough for 14 months Or so of imports now is that enough and Because they are trying to prevent a Bond market collapse they are putting Tons of Yen and this adds even more Inflation pressure and shows investors That your economy is extremely weak if Your central bank has to intervene Directly time and time again in your Bond market it shows us that there isn't Any organic demand for your debt no one Else is buying this is why the bank of Japan have to Pivot down the road their Currency reserves are going to run out And inflation is going to get out of Control and then Corolla we have to make A choice will he let the ball Market Break and let use rise and plunge Japan Into a deep recession or will he just Keep putting money and let the inflation Godzilla destroy Tokyo will he sacrifice The currency to keep the economy afloat Now a big question that keeps coming up Is if there's going to be a global Dumping of U.S dollars something like The plaza Accords where countries all Over the world come together and try to Stabilize World currencies but that will Depend on the United States also coming On board with the idea to devalue their Currency right and guess what the US is
Not interested in playing ball to Stabilize the currency markets now in The report with the G7 failing to reach An intervention deal to fight against The soaring dollar Japan and the United States are at odds with each other when It comes to this currency crisis we have Japan's finance minister Suzuki Threatening more interventions saying Many countries saw the need for Vigilance to dispute over effect of Global monetary tightening and the Mentioned currency moves in that context But there wasn't any discussion on what Coordinated steps could be taken but Just listen to the U.S response from Treasury secretary Janet Yellen she has Expressed no interest in any Plaza Accord 2.0 she said I've stated on many Occasions that I think a market Determined value for the dollar is in America's interest and I continue to Feel that way so Japan is out of luck And they are on their own the U.S Government will continue to let the Dollar strengthen and Destroy World Currencies because it benefits them Remember guys the end goal of the Federal Reserve and have to say it again And again it is demand destruction by Allowing other currencies to depreciate You can cause demand globally to crash And inflation to calm down especially When it comes to energy and a stronger
Dollar is an advantage for the us Because it allows cheaper Imports for The country and if they embark on Another Plaza Accord a weaker dollar Will mean domestic inflation in the U.S Or so even further so Japan has to wake Up they have to realize that the calvary Isn't coming there's no Rescue Squad Coming and the U.S isn't going to weaken Their currency for them Japan will have To realize their reserves unlimited Investors will continue dumping the Yen Because the boj is hell-bent on printing Money to save their bond market so what Can Japan and other countries do when it Comes to fighting against Street hikes Now the most obvious solution is also to Hike rates together with the Federal Reserve and ride out the recession storm If power tightens you're gonna tighten As well to increase investor confidence In your local currency if you try to Stimulate your economy during a period Of global slowdown you are just going to Crush your currency even further another Option is to have bilateral deals or Swap lines with other countries you can Tap on to buy Commodities and Imports For example the bank of Japan has a 75 Billion dollar swap line with India Where they can exchange Yen for US Dollars from India and this will keep The Yen for flooding the currency Markets while allowing Japan to get more
Dollars and buy more time they can use The dollar to sell on the spot Market or Import more raw materials right however This is just a delay tactic guys unless The boj decides to hike rates they are Just left with this one strategy Currency intervention and the success Depends on if the Federal Reserve will Break first Japan is playing a game of Chicken which they'll likely lose they Are trying to use their limited Stockpiles of dollars versus the Federal Reserve we can simply print the reserve Currency they won't win sooner or later The boj will have to make a deadly Choice do they let Dr Bond Market Collapse and let Japan go through a Recession or keep draining Dr reserves To the point where they are vulnerable To a system make shot because at that Point if Japan doesn't have enough Dollars to import stuff the yen is toast They might have to go to the IMF for a Bailout so let me know what you think Will Japan pivot and start hiking rates Or will they continue selling dollars Until their reserves are empty let me Know in the comments below stay safe be Sure to smash the like button subscribe As we navigate through this inflationary Times
