US and Japan Unite to Defend the Yen in Post-Bretton Woods Shift
Rabobank's Senior Market Strategist Benjamin Picton has highlighted the coordinated action between the US Treasury and Japan's Ministry of Finance (MoF) to defend the Japanese Yen (JPY). This cooperation, according to Picton, supports Japan's currency, protects US Treasury borrowing costs, and may signal a shift away from the post-Bretton Woods free-floating Dollar-centric regime.
The coordinated support for the JPY has led to sovereign yields being pushed lower across Europe and North America. The US Treasury is likely encouraged by comments from Japanese Finance Minister Katayama that Japan intends to tap the Fed's FIMA facility to defend the Yen in the future, avoiding the necessity to sell Treasuries to fund Yen purchases.
Picton frames this cooperation as a potential 'financial Fort Sumter' moment, suggesting that it may herald a new monetary order. The US Treasury's support of Japan's efforts to defend its currency not only takes out insurance against rising borrowing costs for the US Treasury but also relieves competitive pressure on US manufacturers.
The coordinated intervention between the Japanese Ministry of Finance and the US Treasury is seen as a potential sign of the emergence of a new monetary order, one where developed market central banks hold larger and more diversified FX reserves. This development could lead to a system of 'you scratch my back, I scratch yours' dollar swaplines with common trade restrictions or other boons for US strategic interests.