Yen Intervention Spikes Concerns Over Treasury Pressure
The recent intervention by Japan and the US to strengthen the yen has sparked concerns about its potential impact on US Treasuries. The link between yen pressure and Treasury pressure is a crucial one, as evidenced by the fact that real yields in the US remain high.
The tension stemming from an uber-cautious Bank of Japan and a policy rate that remains too low is reflected in the super weak yen and elevated long-dated yields. The Japanese policy rate is approximately 50bp below neutrality, exacerbating the situation.
The intervention saw the Treasury Secretary sell euros to buy the yen, which is unusual as typically the trade would involve selling the US dollar. This could be seen as a way to avoid selling US Treasuries, whether through the intervention process or in the wider marketplace.