This is the most important story in global finance right now. Japan is seeing their currency devalue due to liquidity problems, given that difference between Japanese interest rates and American ones is really high. Japan can't have its currency devalue or yields go up

So the BOJ (Bank of Japan) is intervening in their market and trying to provide liquidity, and trying to hold their currency. The Japanese Yen is used for the carry trade, which is a 20T market.

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So the BOJ (Bank of Japan) is intervening in their market and trying to provide liquidity, and trying to hold their currency. The Japanese Yen is used for the carry trade, which is a 20T market. https://tinyurl.com/yvtnbd3a

The only way that they can let this unwind is to either let rates go up. But they can’t because the government has a 200% debt to GDP. So interest expenses would be just enormous and the economy would enter a massive recession

The other way is to provide liquidity to banks so that they don’t have to sell treasuries, so they either provide their own dollars or do via swap lines

That’s where the FED comes in. They are now providing liquidity to the BOJ via swap lines which will add a lot of currency to the market. That is to prevent more selling of U.S. bonds and a crisis to happen right now because of elections

The problem is that it’s a ton of liquidity and it’s just kicking the can by at most a year down the road. Either way, the amount of printing this time around will be just enormous!

If Japan allows the currency to devalue too much, it can cause a death spiral because of all the unwinding of the carry trade. These traders lose a lot of money if the currency devalues causing the currency to devalue more.