⚠️CHART OF THE WEEK: Japan is likely selling US Treasuries to defend the yen

Japanese interventions are adding pressure to the Treasury market

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Japan is desperate to prevent the yen from weakening past 160 per US Dollar.

The Japanese yen surged +1.8% in under 30 minutes during Asian trading on Wednesday, briefly touching 155.04 per US Dollar, consistent with official intervention.

This follows Japan's first intervention since 2024 on April 30, when Bank of Japan account analysis indicated authorities spent ~$34.5 billion to defend the yen.

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The 157 level is emerging as the new line in the sand for Japanese authorities, with the Ministry of Finance warning speculators last week that bold action is nearing.

Goldman Sachs estimates Japan still has enough reserves to intervene ~30 more times at this scale.

Following this, Federal Reserve custody holdings of US Treasuries fell by -$8.7 billion to $2.73 trillion in the week ending May 6.

This is consistent with Japan selling US government debt to fund an estimated $54.7 billion in yen purchases over the same period, according to Bloomberg.

Since 2022, Japan has spent more than $200 billion in total defending the yen, selling US Treasuries each time to raise the dollars needed for intervention.

Importantly, Japan is the largest foreign holder of US government debt, and continued Treasury sales could put further upward pressure on US yields at a time when they are already rising due to surging oil prices and growing fiscal deficit concerns.

In past interventions, Japan did not draw down its cash reserves, according to Bank of America, implying the funding likely came entirely from bond sales.

If the same pattern held this time, the total impact on US Treasury supply from this intervention would be around $70 billion, further lifting yields.

Japanese interventions are adding pressure to the Treasury market.

⚠️Something unusual is happening in the market

The current assessment of the call options activity, ETF flows, market volatility and investor behavior

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