Sunday, June 14, 2009

Behind Japan's Recent Endorsement of the Dollar

Hans Palmstierna emails me:

US Treasury bonds received some temporary support by Japanese officials saying that their confidence in US Treasuries was "unshakable"...Did Japan issue this statement because the US asked, or rather forced them to do so?

As Rahm Emanuel said, never let a crisis go to waste, and I couldn't help but think that maybe someone in the US government thought this was a good time to remind Japan that they are relying on the US military when it comes to North Korea. The fact that North Korea is trying to flex some muscle recently is probably completely coincidental - but telling Japan that the ability of the US military to safe-guard the world against nations such as North Korea is dependent on it's ability to finance itself - well the strategic time to do it would indeed be now. The strategic importance of this overshadowing recent talk of Russia and China, and mumblings from Brazil and others that they are going to reduce holdings of Treasuries should probably not be neglected either.

Finally, I noted that Peter Schiff commented that the statement was so ridiculous, and so utterly overpositive that he thinks they were probably hoping that people realized they actually meant the opposite of what they said.


  1. From the April 2009 TIC data released today, Japan stopped its buying spree of long dated Treasuries, the same month that saw the 30 yr yield pierce the 4% line (net -$1.2 B for April 2009). In March and February 2009, it had been a net buyer of $23.2 B and $25.8 B, respectively. It should be noted that Japan's total holdings of US Treasuries remains roughly unchanged. Interestingly, the UK picked up the slack buying $22.4 B in Bonds. I'm wondering if this was hedge fund activity or the BOE trying to maintain a cheap Pound. The GBP didn't break 1.50 resistance against the US Dollar until May. Either way, that $22.4 B purchase is now worth considerably less.

  2. According to Brad Setser at the CFR, China purchases US Treasuries through the UK and some of them returned to the NY Fed.