On the back of the cooler than expected PPI this morning (which followed the cool CPI), rate-hike expectations (for 2026) tumbled further yesterday to their lowest since Warsh's first FOMC meeting...
Source: zerohedge
Bessent’s selling of EUR to buy JPY, and US threats to weaponize USD stablecoins against the EU may be triggering some unforeseen blowback.
Source: FT, Luke Gromen
The futures market is now pricing just under one Fed rate hike by year-end
Source: Hedgeye, Bloomberg
Japan's yentervention last week was the 2nd largest in history ($85BN) second only to Fukushima
Source: zerohedge
Treasury Secretary Scott Bessent is reportedly urging the Federal Reserve to expand support for Japan, allowing it to raise dollars without selling its massive holdings of US Treasuries.
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 just stepped in to support Japan's currency—without selling dollars
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
Japan will use the International Repo Facility in the future to boost the Yen and avoid having to sell U.S. Treasuries
Source: Barchart
Bank of Japan ) keeps rates unchanged at 1% However, it warned that core inflation was likely to exceed its 2% target from September.
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
