US and Japan Fuel Currency Intervention Chaos

Japan's attempts to stabilize its currency through intervention have raised concerns about the potential consequences for the US Treasury market. The unusual joint effort between the US and Japan involves using the Federal Reserve's FIMA repo facility, which allows foreign official institutions to temporarily exchange Treasuries for dollars. This has added liquidity to the already saturated US economy.

The scale of this intervention is currently small, but Treasury Secretary Scott Bessent wants to drop the $60 billion cap on the facility and provide unlimited assistance to Japan. However, critics argue that this will only lead to further instability in the markets. Chris Martenson commented that Bessent 'thinks he knows the correct prices for things' and does not believe in market forces finding authentic clearing prices.

Robin Brooks echoed similar sentiments, stating that currency interventions do not work. He pointed out that sanctions have failed in various instances throughout history, including with Russia, Iran, Afghanistan, Vietnam, and Cuba. The irony is that Japan's massive gains from its Treasury portfolio make it unlikely to dump dollars anytime soon.