Japan-Yen Fix Could Flood Markets with Dollar Liquidity

Arthur Hayes recently published an essay arguing that Japan and the US Treasury have agreed on a method to strengthen the yen: using the Federal Reserve's currency swap facility. This would involve Japan repoing its Treasury holdings to the Fed in exchange for dollars, then selling those dollars to buy yen in the open market.

The current limit on each counterparty's outstanding loan is $60 billion, but Hayes says this is too small to support intervention on the scale Japan may require. He estimates that between Japan's government and GPIF, there are $1.373 trillion in Treasury holdings that could be used to fuel a yen fix.

Hayes believes that if the Fed were to remove the cap and add new counterparties, it would lead to a wave of dollar liquidity hitting the global markets, which he thinks will benefit Bitcoin, gold, and Ethereum. He specifically targets Ethereum as undervalued relative to other majors and names Ethena's ENA token as a smaller bet.