Japan's currency defense just triggered the largest monthly drop in its FX reserves EVER:
Japan's foreign currency reserves plunged -$94.6 billion, or -8.7%, in August, the largest monthly drop in history, to $995 billion, driven by the Ministry of Finance's intervention to support the Yen. Over the 4 months from May through August, spanning multiple rounds of intervention, reserves have fallen a combined -$174 billion, or -14.9%. Most of this decline came from securities holdings, mostly US Treasuries, which dropped -$87.8 billion in August alone, to $840 billion, while foreign currency deposits fell a smaller -$6.9 billion, to $155 billion. No wonder the US is getting more involved in Japan's currency policy. Source: Global Markets Investor
There is a record $8.29 trillion in money market funds right now.
Source: Koyfin
Short positions on the Japanese Yen remain near the largest in history
Source: Bloomberg, Barchart
Chinese yuan officially surges to its STRONGEST level against the U.S. dollar, since early 2023.
Nearly 10% in 20 months. More than +4% this year alone. Three forces are driving the surge despite efforts to slow it: - China’s massive trade surplus is driving demand for yuan - Exporters are converting dollar earnings into yuan, adding more pressure - A weaker U.S. dollar has amplified the move Beijing is already leaning against the rally. The PBOC has repeatedly set its fixing weaker than markets expect, while state banks have reportedly bought dollars to limit further gains. Source: coinbureau
Japanese Yen hits strongest level against the U.S. Dollar since February
Source: Barchart
Something is breaking in the US dollar
The 30-year Treasury yield just hit its highest level in nearly two decades. Yet the dollar is falling. That is not how the playbook normally works. Higher yields should attract foreign capital and strengthen the currency. Instead, the DXY dropped from nearly 102 to below 99 in August. Meanwhile: → The Chinese yuan strengthened → The Japanese yen surged as BOJ rate-hike expectations increased → Investors demanded higher yields to hold long-term US debt The message from markets is increasingly uncomfortable: Higher Treasury yields may no longer reflect US economic strength. They may reflect growing concerns over America’s $40 trillion debt burden, widening deficits and expanding Treasury buybacks. Bond investors want more compensation. Currency investors want less exposure. Friday’s jobs report is the next major test for both the dollar and Treasury yields.
Someone trying to save the Japanese Yen again
Source: Barchart
The narrative that Iran holds the upper hand is increasingly difficult to defend.
The rial is hitting fresh lows almost daily as the blockade tightens its grip on the economy, while Tehran’s control over the Strait of Hormuz is steadily weakening. Iran’s remaining leverage is its ability to drive oil prices higher—and so far, even that strategy is failing. Source: Robin Brooks
