Japan holds one of the largest Stockpiles of U.S. Treasuries in the World. If the Yen comes under Severe Pressure, One Obvious Way to Defend it would be to Sell those Treasuries, Convert the Dollars into Yen, and Support the Currency
By LauraAboli
The problem is that such a move would not only shake Japan’s own financial system, it could send shockwaves through the U.S. Treasury market. A large scale sell off would push Treasury prices lower and yields higher, making it even more expensive for Washington to finance its already enormous debt.
In other words, Japan’s currency problem is also America’s bond market problem.
That creates a powerful shared incentive to find alternatives before Japan resorts to selling its Treasury holdings. Coordinated intervention, liquidity facilities and other temporary measures may buy time, but they do not remove the underlying imbalance.
The question is no longer whether the United States has an interest in influencing Japan’s response. It clearly does.
The real question is how long increasingly complex interventions can postpone an adjustment that many believe is ultimately unavoidable.
