Syz the moment

Japan owns roughly $1.1 trillion in US government bonds. When it intervenes to support the yen, it needs dollars. Once its cash reserves are depleted, selling Treasuries becomes the most direct way to fund further intervention. That is a problem for the US. Large Treasury sales would increase bond supply, pushing prices lower and yields higher. With the 10-year Treasury yield recently climbing above 4.7%, Washington has strong incentives to avoid additional upward pressure. The solution is the Fed's FIMA Repo Facility. It allows foreign central banks to temporarily exchange Treasuries for dollars without selling the bonds into the market. Japan receives dollar liquidity, then later repays the funds and takes back its securities, leaving the bond market largely unaffected. The challenge is capacity. The facility is currently capped at $60 billion per day, while Japan is estimated to have spent $60–80 billion supporting the yen in just one week. According to reports, Bessent wants that limit increased. However, expanding the facility would require approval from the Federal Open Market Committee (FOMC), and the Federal Reserve has so far declined to comment. Source: Bull Theory

The US Treasury reportedly bought Japanese yen for the first time since 2011, funding the move by selling euros rather than dollars. The goal: help stabilize the yen while avoiding downward pressure on the US dollar. Why does this matter? Japan owns about $1.19 trillion in US Treasuries, making it the largest foreign holder. If the yen weakens too much, Japan may need to sell Treasuries to raise dollars and defend its currency. More Treasury selling can push US bond yields higher, increasing borrowing costs across the economy—from mortgages to auto loans. Japan can also tap the Fed's FIMA Repo Facility, allowing it to borrow dollars against its Treasury holdings instead of selling them outright. That could reduce pressure on the US bond market. Reports suggest the US and Japan may announce a coordinated currency policy in the coming days. Source: Hedgie

Source: Barchart

The move comes as Japan reportedly conducted an intervention to strengthen the yen on Thursday night. • The Bank of Japan kept its policy rate unchanged at 1% in an 8-1 vote on Friday, in line with market expectations, after raising rates to their highest level since 1995 last month. • Board member Naoki Takata dissented, calling for an immediate 25-basis-point hike, citing upside inflation risks and changing global financial conditions. • The BOJ said it will continue to raise rates if economic activity, inflation and financial conditions evolve as expected, adding that underlying inflation is now close to its 2% target. • In its latest outlook, the central bank lowered its FY2026 core CPI forecast to 2.5% from 2.8% and raised its FY2026 GDP growth forecast to 0.6% from 0.5%. FY2027 GDP growth forecast is raised to 0.8% from 0.7% 🏦BoJ Says: Significant downside risks to economy activity & significant upside risks to prices have decreased. In its outlook, the BOJ said that core inflation was likely to accelerate to a level “clearly above” 2% from the second half of its 2026 fiscal year, which runs from September to March. It cited wage increases being passed along into selling prices, the rise in crude oil prices and the recent depreciation of the yen. Inflation should then come down toward 2% as crude oil prices decline, it said. Japan’s core inflation for July came in at 1.6%, and has been below 2% for most of 2026. The decision comes as Tokyo reportedly conducted an intervention on Thursday night, in conjunction with U.S. authorities executing a “rate check,” a move usually seen as a precursor to intervention. Peter Schiff: "The BoJ’s decision to hold rates at 1%, with only the possibility of a quarter-point hike by year-end, ensures a weaker yen, rising inflation, and higher long-term interest rates, ultimately forcing the BoJ to hike much more in the future, with even more adverse consequences". Source: Augur Infinity

The SNB earned 25.2 billion francs ($31.2 billion) from January through June, it said in a statement on Friday. That brings a year-end payout to the Swiss government back into focus after the first quarter resulted in a small loss. Source: Bloomberg

Stocks tumbled for a myriad of reasons Wednesday, but mostly because the bond market signaled the Federal Reserve could be falling behind on the inflation fight as the central bank chose to keep interest rates unchanged. The S&P 500 slid 1.52%. The Nasdaq Composite fell 1.74% to 24,442.94, ending the session more than 10% off its all-time high. The Fed kept to the sidelines in its latest rate decision, and the bond market responded with the 10-year Treasury yield jumping 7 basis points to above 4.67%. The 30-year Treasury yield soared 10 basis points to above 5.2%, hitting its highest level since 2007. Three officials wanted a hike, but the Fed still stood pat on rates. And Fed Chairman Kevin Warsh’s tough talk failed to convince the bond market.

Their view is that several Fed governors remain concerned about inflation and are reluctant to ease policy too soon, fearing it could undermine the Fed's inflation-fighting credibility. In other words, preserving credibility may take priority over delivering the rate cuts markets are expecting. Source: NDR

Source: Hedgeye, Bloomberg