Japan's Fiscal Policy and its Impact on US Treasury Markets

Japan's Economic Policy Shift

• 🇯🇵 Newly elected Japanese Prime Minister Sonah Takahichi announced a commitment to a robust stimulus package.
• 📉 This policy shift negatively impacted Japanese bonds, causing 40-year yields to rise from 3.37% to a high of 4.21%.
• 💸 The yen, already depreciating since early 2021, continued its slide, reaching a low of 159 yen to the dollar on January 14th, marking a 35% drop against the dollar in 5 years.

US Treasury Market Exposure

• ⚠️ Japan holds $1.2 trillion of US Treasury bonds, posing a significant risk to the US if these holdings need to be sold quickly.
• 🌐 A threat of economic shock in Japan has serious consequences for the United States due to this substantial investment.

Potential US Intervention and Yen Support

• 💬 Recent narratives suggest the US might support the yen, with the US Treasury and the Bank of Japan conducting a "rate check" on January 23rd.
• 📈 This action, involving contacting currency trading desks to inquire about yen pricing, implied potential buying interest and helped push the yen 4% higher without direct intervention.
• ⏳ The fiscal issues in Japan appear persistent, indicating this story is far from over.