US-Japan Currency Alliance: Who Really Wins?
The recent joint intervention by Japan and the United States to halt the yen's decline has raised questions about who benefits from this currency cooperation. Atsushi Mimura, Japan's vice finance minister for international affairs, described the move as the culmination of the US-Japan currency alliance.
One key element is the Federal Reserve's FIMA Repo Facility, which allows foreign central banks and monetary authorities to obtain dollars temporarily by using their US Treasury holdings as collateral. The United States has proposed expanding this facility and encouraging Japan to make active use of it.
However, there is a catch - Japan would have to pay interest on the borrowed dollars. If it had used FIMA during its recent intervention, it would have had to pay interest on the $11 trillion to $13 trillion spent on yen-buying, dollar-selling intervention.
The Fed's current lending rate is 3.63%, which may not seem particularly costly, but repeated borrowing could result in a substantial interest burden for Japan.