Recently, it was reported that Japan's Agriculture and Forestry Central Bank will sell U.S. Treasury bonds and European bonds worth up to 10 trillion yen (about 63 billion U.S. dollars). Arthur Hayes, founder of BitMEX, commented that the United States will start printing money and needs to accelerate its move to crypto-risk assets!
(This article is the personal opinion of Arthur Hayes and is not investment advice)
Norinki Central Bank to sell 10 trillion yen of U.S. Treasuries and Eurobonds
According to Japanese media reports, the Norinbank of Japan plans to sell up to 10 trillion yen (about 63 billion U.S. dollars) worth of U.S. Treasury bonds and European bonds, which may result in a loss of about 1.5 trillion yen in the fiscal year ending in March 2025. Consolidated net loss.
The Agriculture, Forestry and Fisheries Central Bank, the central organization for financial institutions of agriculture, forestry and fishery cooperatives, is currently negotiating with agricultural cooperatives across the country on the plan, which plans to raise about 1.2 trillion yen in new capital to ensure their financial health.
As of the end of March, foreign bonds accounted for 42% of the approximately 56 trillion yen in financial market assets managed by the Norinbank Central Bank. The bank's potential losses on bond investments, including foreign bonds, total about 2.2 trillion yen.
Arthur Hayes explains why Bank of Japan took losses and exited
Arthur Hayes noted that Norinki Central Bank was the first bank to capitulate and announce that it had to sell bonds, and he expected other Japanese banks to engage in the same business. Japanese commercial banks held about $850 billion in foreign bonds in 2022, according to an International Monetary Fund (IMF) survey. That includes nearly $450 billion in U.S. bonds and about $75 billion in French bonds.
He also explained why the Bank of Japan chose to sell U.S. debt and take losses at this time. Because the Bank of Japan does not use Japanese currency to purchase foreign bonds, their method of operation is
Sell Japanese yen, buy US dollars
Forex hedging: Use 3-month forward FX rollability with better liquidity for hedging
However, as can be seen from the chart below, as interest rates in various countries continue to rise, since mid-2022, the Bank of Japan's hedging costs have become much higher than the benefits of its purchases of foreign bonds. And this interest rate spread cannot be narrowed in the short term (although Canada and the European Central Bank have begun to start a cycle of interest rate cuts, the United States has not yet started, and even if it starts, it will proceed slowly, which will not be of much help in narrowing the current interest rate spread) .
What Arthur Hayes thinks is a possible solution
Hayes believes that the Bank of Japan (BOJ) will act first, suggesting that Japanese banks should not sell U.S. debt on the open market, but transfer these bonds directly to the Bank of Japan's balance sheet to avoid affecting the market.
The Bank of Japan then holds these Treasury bonds until maturity through the FIMA repurchase facility.
What is FIMA?
The FIMA Repurchase Agreement (Foreign and International Monetary Authorities Repo Facility) is a tool launched by the U.S. Federal Reserve System (Fed) in March 2020. Its main purpose is to support the liquidity of global financial markets and ease the impact of the epidemic on the global economy. impact.
This agreement allows foreign central banks and international organizations to use their holdings of U.S. Treasury securities as collateral to apply for U.S. dollar liquidity from the Federal Reserve. During the transaction, FIMA account holders can temporarily sell their U.S. Treasury bonds to the Fed in exchange for U.S. dollars, and buy back the bonds based on the maturity date specified in the repurchase agreement to meet the temporary demand for U.S. dollars.
"Money printing" is about to start again!
If the Bank of Japan sells a large amount of U.S. Treasury bonds in the market, causing U.S. bond yields to rise (when prices fall, yields rise), it will cause various U.S. loan interest rates based on U.S. bond yields to surge. Hayes believes that this is not What the U.S. government likes to see in this election year.
The Bank of Japan is one of the few central banks that can use the FIMA repurchase agreement, so Hayes believes that the United States will definitely help to ensure that U.S. bond yields remain at a low level to avoid a financial market disaster. The way to provide this liquidity is FIMA "printing money"!
So that’s why Hayes says he’s accelerating his switch from Ethena-collateralized USD (sUSDe) to crypto-risk assets. He also tweeted on 6/19 that he was adding parts to Pendle and Doge.
This article Will Japan sell large amounts of U.S. debt? Arthur Hayes: The United States will start printing money and needs to accelerate its move to crypto risk assets! First appeared in Chain News ABMedia.
