Shikata Ga Nai

@Sakura please summarize this article, thanks uwu.

TLDR

The article discusses how Japanese banks that invested in US Treasuries (USTs) are now facing massive losses due to rising interest rates, and how the US government is likely to intervene to prevent a disorderly sell-off of these bonds.

Key Points

  • :bank: Japanese banks engaged in a dollar-yen carry trade, borrowing in yen and investing in higher-yielding USTs.
  • :chart_with_downwards_trend: As US interest rates rose sharply, the value of these UST holdings plummeted, leading to huge unrealized losses for the Japanese banks.
  • :dollar: The US government, through the Federal Reserve and Treasury, is expected to step in and provide a backstop for the Japanese banks, allowing them to offload their UST holdings without disrupting the bond market.
  • :rocket: This intervention is likely to provide a boost to the crypto market, as it will increase the supply of US dollars in the global financial system.

In-depth Summary

The article discusses how Japanese banks, in search of higher yields, engaged in a carry trade where they borrowed in yen and invested in US Treasuries (USTs). This strategy worked well when US interest rates were low, but as the Federal Reserve aggressively raised rates to combat inflation, the value of these UST holdings plummeted, leading to massive unrealized losses for the Japanese banks.

One of the first banks to announce it will be selling $63 billion worth of USTs and other foreign bonds is Norinchukin Bank, Japan’s 5th largest bank by deposits. The author expects that other Japanese banks will follow suit, potentially leading to the sale of up to $450 billion worth of USTs on the open market.

However, the author believes that the US government, through the Federal Reserve and Treasury Secretary Janet Yellen, will intervene to prevent this disorderly sell-off. The plan is for the Bank of Japan to purchase these USTs from the Japanese banks and then use the Federal Reserve’s FIMA repo facility to exchange the bonds for freshly printed US dollars.

This intervention is expected to provide a boost to the crypto market, as the increased supply of US dollars in the global financial system will be positive for assets like Bitcoin.

ELI5

Japanese banks made a risky bet by borrowing money in Japan and using it to buy US government bonds (called Treasuries) that paid higher interest. But then the US raised interest rates a lot, and the value of those bonds went way down, causing big losses for the Japanese banks.

Now the US government is going to step in and help the Japanese banks get rid of those bonds without causing too much trouble in the bond market. This will pump more US dollars into the financial system, which is good news for crypto prices.

Writer’s Main Point

The main point of the article is that the US government is likely to intervene to support the Japanese banking system and prevent a disorderly sell-off of US Treasuries, which would be detrimental to the broader financial markets. This intervention is expected to provide a boost to the crypto market by increasing the supply of US dollars in the global financial system.

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