The Federal Reserve started the second round of large-scale harvesting of Japan, but it did not expect to shoot itself in the foot.
At the end of June, the Fed began to move on Japan again.
In April this year, the Federal Reserve cut a round of Japanese leeks, but it was not hard enough. The Bank of Japan made every effort to rescue the market, and within a few days, the yen, which had fallen to 160 against the dollar, was brought back to around 155. At that time, although the Fed warned that the intervention in the exchange rate should be "moderate", it did not take any further action, and Japan and the United States were at peace for a while.
However, this peace and quiet is destined to be only the calm before the storm. The Federal Reserve is likely to cut interest rates this year. This is not only a judgment based on economic laws, but also a judgment based on American political tradition. In the past, every year when the US president asked for re-election in the New Year, the White House would try to force the Fed to release water. Because only when the Fed releases the water will the government have the money to push more public policies to land and curry favor with its target voters. Historically, the only U.S. president who didn't do so was the well-known "good guy president" Carter, who was beaten all the way by his rival Ronald Reagan in the general election and finally left the election.
With Biden and the Democratic Party behind Biden's attachment to the presidency, it is certainly impossible to expect him to follow Carter's script. Therefore, there is basically no need to question that the Fed will release water before this year's election.
Next, the Fed will face a question: who to choose to pay for this round of water release.
If the Fed wants to release water before the election, it must carry out a global financial harvest to fill the huge fiscal hole at present.
In the past few years, the Federal Reserve has raised interest rates aggressively, trying to fill the financial bubble that was pushed up by its own crazy money printing in the years when the epidemic broke out by harvesting third world countries, but the final harvest results were not ideal. Now that interest rate cuts are imminent, the Fed has no ability or patience to continue its tug-of-war with third world countries, and has begun to directly attack Japan, an "ally" country with incomplete sovereignty and the United States that is at the mercy of the United States.
In the past few days, with the Fed's move, the yen exchange rate against the dollar has begun to plummet again, and it has fallen by another 5 points, and it has remained stable above 160. It can be said that the results of the Bank of Japan's bailout in April have completely come to naught.
However, the knock-on effect of this round of sharp decline in the yen caught the Fed a little off guard.
The success of harvesting Japan should have been good for the U.S. economy, but what is surprising is that in the past few days, as the yen has plummeted, U.S. bond yields have increased instead of decreasing.
This yield is a financial term that reflects the fluctuation of the spread between buying and selling by U.S. bond investors, so a rise in U.S. Treasury yields means that the value of U.S. bonds themselves is falling. In other words, seeing that Japan is being harvested, investors' confidence in U.S. bonds is getting lower and lower, and they have sold U.S. bonds in the market in advance.
The logic behind this, if you think about it carefully, is actually not difficult to figure out: Japan, which is now being harvested by the United States, is a big US debt. The yen plummeted, and investors around the world are worried that the Bank of Japan will sell some U.S. bonds to save the market, and the U.S. bond yields will be further pulled up.
And if the Bank of Japan reaches this point, it is still forced by the United States to sell US bonds to save the market, then the problem will be even greater. Because an important reason for overseas sellers to buy U.S. bonds is to have more tools to regulate the exchange rate. Now that Japan has been harvested so badly, it still pinches a large amount of U.S. debt in its hand and does not dare to sell it, which is undoubtedly telling the world that the value of U.S. debt as a regulatory tool has approached zero infinitely. In such a situation, both US bonds and the Federal Reserve will suffer a serious "crisis of confidence".
The Fed just wanted to cut Japanese leeks and fill the shortfall, but it didn't expect that it was too ugly to eat, which scared investors away.
If you don't harvest like crazy, you will face the risk of crashing at any time; But if you really reap the harvest with a ruthless hand, more and more countries will "run away with buckets" from the dollar system, which will further accelerate the process of collapse. The current hegemony of the dollar is caught in such a loop.