Why the US Dollar is Surging Against the Japanese Yen \ stacker news ~bitcoin

Why the US Dollar is Surging Against the Japanese Yen

725 sats \ 17 comments \ @supertestnet 26 Oct 2023 bitcoin

Japan raises money by taking out loans. It does this in the form of bonds: you give us 90 yen now, we give you 100 yen later.

Japan's bonds have a low interest rate. This frustrates Japanese bond holders. They want the 5% rates America is paying. So they are selling their bonds. And when you sell a bond, you get the currency of the country that issued it: yen. Now those people, who were bond holders, are now yen holders. But they don't want yen, they want American bonds. So they exchange the yen i.e. sell it for USA bonds.

And when you sell something, its price falls. Bitcoiners know how that works: when there's lots of sell pressure, bitcoin's price falls. Same with the yen.

So the yen's price is collapsing relative to the US dollar as people keep selling it.

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36 sats \ 0 replies \ @siggy47 29 Oct 2023

Lavish just published this. It gives a great overview of the crazy history of the yen over the past 30 or so years: https://ckarchive.com/b/5quvh7hvllqmdsp5xxd52arz42v44

42 sats \ 1 reply \ @quark 26 Oct 2023

Unless they pay much higher interest rate, which then means that the higher interest, the worst currency to have. Countries with hyperinflation can't even convince anyone even with 100% high interest. So high interest is nice, until a level in which it is not nice anymore because they lose more with the devaluation of the currency.

43 sats \ 0 replies \ @supertestnet OP 26 Oct 2023

Well Japan is not in hyperinflation yet. I don't think the currency devaluation has hit the "streets" yet and caused the prices of goods to rise. But as Christine Lagarde says:

42 sats \ 5 replies \ @GxqoRR 26 Oct 2023

Agree. I think USD is stronger against most other major currencies at the moment. It also means people have confidence in the currency. But with higher interest rate, it also comes more debts, since US has to pay those interests. I wonder how long it will last, until people lose confidence because of the massive debt.

31 sats \ 4 replies \ @supertestnet OP 26 Oct 2023

I wonder too. For now, it seems like there is growing demand, worldwide among regular people, for US bonds.

The Treasury Direct service saw a fivefold increase in its number of new accounts.

Money market accounts saw a 500x increase in retail assets under management.

Everyone and their mother is buying USA bonds to combat inflation, and although some governments are selling USA bonds to prop up their national currencies, it doesn't seem to be working -- the market just buys them right up and keeps on trucking. The USA can keep issuing bonds too because the market just loves them right now. I don't know when it will get saturated but right now it's like pure, growing gluttony.

The world wants US debt. I suppose their own countries' debt is just much less attractive.

203 sats \ 0 replies \ @supertestnet OP 26 Oct 2023

Also worth noting: in 2019 the average volume of the ishares government bond ETF was $81,643,000 in trades per day.

In 2023, so far, it is $229,300,000.

A nearly 300% increase in volume. Appetite for US debt is somehow growing among retail and professional traders even as the possibility of repayment, in real terms, shrinks. People on the podcasts I listen to keep asking "who's gonna buy all this debt the USA keeps issuing? Foreign governments are all selling."

I think the answer is: traders will buy it, both retail and pro, and regular people opening up money market accounts to try to beat inflation. The latter probably don't even know what they are buying. If inflation gets back up to 7% or so, people will think they are fighting it by getting 5% returns through buying ever more government debt. So I plan to tell them about bitcoin and why it's a better option. But nonetheless I don't think the USA will have trouble finding buyers for their debt in the near term.

100 sats \ 2 replies \ @siggy47 26 Oct 2023

https://www.msn.com/en-us/money/markets/treasury-yields-jump-as-auction-of-20-year-bonds-to-test-wall-streets-appetite-for-more-us-debt/ar-AA1isd29 And this: https://www.businessinsider.com/stock-market-news-today-tech-plunge-earnings-higher-interest-rates-2023-10

0 sats \ 1 reply \ @supertestnet OP 26 Oct 2023

It's interesting that both articles say there is weak demand for us bonds on wall street but yet acknowledge that every bond on offer was purchased

82% by wall street funds and 18% by "dealers." I'm not sure who dealers are but I'll bet they are a wall street fund

Edit: Maybe it's these people: https://www.bdamerica.org/

10 sats \ 0 replies \ @siggy47 26 Oct 2023

Here's my take. The traditional big buyers China, Japan and other govs have stopped buying. That's either for political reasons or they're legitimately worried that "last man standing" dollar is in trouble too. As you point out, retail investors love the yield, especially as the stock market crashes. But, if you hold the bonds for any length of time, your 5% gets eaten up by inflation. Also, if you hold bonds as collateral, the value drops as yield rises. You can decide to hold to term, like a two year maybe. But then the govt. is paying you back with debased dollars. Demand will never completely disappear, since lots of funds have a certain allocation to fixed income.

41 sats \ 6 replies \ @siggy47 26 Oct 2023

For a while now the BOJ has been intervening by selling USdollar assets whenever the yen fell below 150 to the dollar. Just recently they decided to exercise yield curve control to maintain their 10 year bond yield at one percent. In other words, the BOJ is intentionally allowing the yen to crash against USD.

76 sats \ 5 replies \ @supertestnet OP 26 Oct 2023

For a while now the BOJ has been intervening by selling USdollar assets whenever the yen fell below 150 to the dollar

I don't think they can keep doing that forever. They don't have an unlimited number of us dollar assets to sell

They may have already run out

In other words, the BOJ is intentionally allowing the yen to crash against USD

I wonder if they are trying to make it look intentional. Their other options are so much worse. But I'll bet they wish they could have a strong yen

47 sats \ 4 replies \ @siggy47 26 Oct 2023

Japan has been such a shit show for so long. They've kept rates near zero since the 90s, I think. I think their juggling act is coming to an end. Its always a tradeoff. They like to keep the yen kind of weak so they can sell lots of Toyotas overseas. Foreign manufacturers then can't compete on price.

43 sats \ 3 replies \ @supertestnet OP 26 Oct 2023

A weak yen allows you to export products for a while but if merchants in your country don't raise their domestic prices, foreigners will come into your country and use their hard currency to buy all your domestic products too, and even the means of production, eventually. Your workers may make a little money exporting cars, but they won't have enough money to buy stuff that foreigners already bought. You either end up with inflation or shortage. I don't think you can long have a low exchange rate and low inflation.

21 sats \ 2 replies \ @siggy47 26 Oct 2023

Given the economy's reliance on exports, Japan has historically focused on arresting sharp yen rises and taken a hands-off approach to yen weakness, which is more difficult because yen-buying requires Japan to draw on limited foreign reserves.

Some like John Vail, chief global strategist at Nikko Asset Management, say currency weakness is crucial for Japan's economy to maintain its competitiveness as a secure source of supply-chain diversification.

The above quotes were taken from this article: https://www.reuters.com/markets/europe/what-are-consequences-yens-fall-20-year-low-2022-06-10/

33 sats \ 1 reply \ @supertestnet OP 26 Oct 2023

Good find. Interesting that last year they were already questioning whether Japan has enough foreign assets to intervene effectively in the fall of the yen.

0 sats \ 0 replies \ @siggy47 26 Oct 2023

I have great difficulty wrapping my head around Japan. I try to get a handle on it, but it's a deep rabbit hole. It's amazing to me that the economy is still afloat. But, from what I read, it's unravelling now.

30 sats \ 0 replies \ @siggy47 26 Oct 2023

This article just appeared this morning: https://www.cnbc.com/2023/10/26/dollar-firms-yen-weakens-to-intervention-wary-level.html