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As the younger brother of the United States, Japan has always had a soft spot for the US dollar, and from local officials to the Japanese people, they are actively buying US bonds, and now Japan has become the largest country in the world holding US bonds.
According to the data, Japan currently holds a total of $1.15 trillion in US Treasury bonds. Friends who like to watch finance may find that Japan has been selling US bonds recently, what is going on?
In the final analysis, it is related to the United States, a few years ago, the United States took advantage of the hegemony of the dollar, constantly raising interest rates and then cutting interest rates to harvest the currencies of other countries, and recently the United States began this operation, but I did not expect that the first thing that could not stand it was Japan, since the United States harvested, the yen has been depreciating.
Seeing that the yen's exchange rate was about to fall below 160, the Bank of Japan had no choice but to take out 980 million foreign exchange reserves to rescue the market, and finally pulled the yen exchange rate back to 151, and then sold 37.5 billion U.S. bonds in April this year to stabilize the exchange rate, and finally stabilized the exchange rate at about 155.
However, with the announcement of interest rate cuts in Europe and other countries, everyone thought that the day of the U.S. interest rate cut would not be far away, but they did not expect that the U.S. would not cut interest rates again and again, which led to changes in the exchange rate of the yen, and in order to stabilize the exchange rate, the Bank of Japan decided that it may raise interest rates at an appropriate time.
When Japan had not waited for a good time to raise interest rates, it first received a bad news, that is, the United States put itself on the foreign exchange reserve monitoring list, and the reason given by the United States was to sell US bonds without its consent, and Yellen had warned Japan before that when the yen depreciated, do not think about selling US bonds to intervene in the market.
You must know that most of the 1.1 trillion U.S. bonds held by Japan are long-term U.S. bonds, and those sold in April are all short-term U.S. bonds.
With Japan being added to the list of foreign exchange reserves, the yen began to depreciate again, the data shows that the yen has been depreciating for seven consecutive days, and now that the exchange rate of the dollar and the yen has broken through the 160 mark, if Japan does not do anything, then the yen will soon become the worst currency in the world.
Just when the Bank of Japan did not act, Japan's fifth largest bank, the Agriculture and Forestry Central Bank, began to thunder, it is reported that before March 2025, the Agriculture and Forestry Central Bank will sell off all the $63 billion in US bonds and European bonds in its hands.
Didn't you say that the Bank of Japan is not allowed to sell US bonds without communicating with you? Well, I'll let the financial institutions sell off on their own, so you don't have anything to say, so I will push the fifth largest bank to the surface, and the Bank of Japan will secretly make plans to increase the value of the yen and stabilize the yen exchange rate by selling the U.S. bonds of the Central Bank of Agriculture and Forestry.
But is that really the case? I'm afraid not necessarily, the reason why Japan's Central Bank of Agriculture and Forestry has so many U.S. bonds in its hands is because when the Federal Reserve implemented low interest rates a few years ago, the Fifth Bank frantically bought U.S. bonds, but the price of U.S. bonds has decreased after the U.S. bond yield has risen to more than 5% in recent years.
The Fifth Bank, which originally thought that the United States would cut interest rates and make a profit, could not support itself before the United States cut interest rates, and the Central Bank of Agriculture and Forestry said that the loss for the whole year of 2023 was more than three times the estimated loss, so now selling US bonds is really cutting meat to save the market.
Speaking of which, some people may ask, even if Fifth Bank does not sell US bonds, it will earn high interest every year, is it necessary to sell US bonds?
In fact, if you think about it carefully, the value of U.S. bonds is falling now, even if you get interest, but when the interest you get is not enough to offset the falling value of U.S. bonds, is it also a kind of decline in disguise?
In fact, the statement of the Central Bank of Agriculture and Forestry is actually testing the United States, you must know that 63 billion US dollars of US bonds is not a small amount, if the United States does not take measures against this, then it means that the United States has adopted a blind eye to this matter, then if the yen continues to fall, the Bank of Japan will have to consider selling long-term US bonds.
In fact, it can be seen from the time when the United States added Japan to the foreign exchange reserve monitoring list, the United States' own domestic economy is likely to be unable to support it, and the United States announced interest rate cuts because the California employment data given by the U.S. government is 117,000 new jobs, because the employment data can represent the domestic economy to a certain extent, so the U.S. government feels that the domestic economy is good before announcing interest rate cuts.
However, I did not expect this data to be inaccurate, because a large number of immigrants came to the United States to seize jobs for American residents, resulting in most of the low-skilled jobs occupied by foreigners without American status, and the U.S. government used free responses when collecting data.
In fact, there will be 32,000 fewer jobs in California in the fourth quarter of 2023, which means that the U.S. economy is not as good as we see.
Secondly, when the United States laid out the harvesting currency, it also had a negative impact on its own country, resulting in poor liquidity of its own dollar, and serious domestic inflation, according to the United States Bureau of Labor Statistics, the price of McDonald's in the United States has risen by 141.4% compared with four years ago, and even auto insurance has risen by 20%.
In addition, the serious lack of people's purchasing power and the fact that the United States has been issuing US bonds in the past and paying a large amount of interest every year have led to a large number of burdens, and the combination of all these burdens has led to a state of depression in the domestic economy of the United States.
All in all, the United States can only choose to harvest currency to solve its domestic problems, but Japan, as the largest "creditor" of the United States, cannot afford such a harvest from the United States, so it can only sell US bonds to increase the value of the yen, so there is a big contradiction between the two.
We don't know who will take a step back in the end, but we can see from this incident that it is dangerous to be a friend of the United States, but it is fatal to be an ally of the United States.
What are your thoughts on the sell-off of US Treasuries? Welcome to discuss in the comment area!
Information sources:
Guangming.com: The unprecedented rescue efforts are difficult to cover the huge interest rate spread, and Japan's "defending the yen" action has had little effect
Reference news: Japan is included in the "exchange rate manipulation monitoring list" by the United States
Wall Street Insights: U.S. Job Growth May Be Fake in 2023? California has exploded into a thunderstorm!