[DigitalToday reporter Yoonseo Lee] BitMEX co-founder Arthur Hayes (아서 헤이즈) argued that the U.S. Federal Reserve could expand dollar liquidity provision as Japan seeks to induce a stronger yen.
Cryptopolitan, a blockchain media outlet, reported on Aug. 11 that Hayes said in a recent essay that U.S. Treasury Secretary Scott Bessent (스콧 베센트) may seek to use the Fed's liquidity tools to stabilise the dollar-yen exchange rate.
Hayes focused on the Fed's FIMA (foreign and international monetary authorities) repo facility. Under his scenario, Japan could post its holdings of U.S. Treasuries as collateral at the Fed to obtain dollars, then sell dollars and buy yen in the foreign exchange market. It would then invest the yen it secures in domestic assets such as Japanese government bonds and stocks.
He presented three options for Japan to induce a stronger yen. They were: the Bank of Japan (BOJ) raising interest rates aggressively; getting institutions such as GPIF (Government Pension Investment Fund) to sell overseas assets and bring funds back to Japan; and Japan's finance ministry obtaining dollars through FIMA and buying yen. He judged the third option as a choice that both the United States and Japan could bear.
He analysed the first option as costly due to the interest-rate gap and the BOJ's asset structure. He said returns on dollar assets are currently about 2.75 percentage points higher than returns on yen assets, keeping the carry trade alive in which investors borrow low-rate yen and invest in dollar assets. If the BOJ raises rates, that structure could weaken, increasing pressure for a stronger yen.
He added that the BOJ holds large amounts of Japanese government bonds after yield curve control, meaning it would have to accept falling bond prices and growing valuation losses if rates rise. Hayes said, "When rates rise, bond prices fall," and added, "The more bond prices fall, the larger the BOJ's unrealised losses become."
He saw the second option as carrying less political burden in Japan but potentially weighing on U.S. markets. GPIF manages about $1 trillion to $2 trillion in assets and has raised the share of overseas stock and bond investment since its 2014 asset allocation change. Hayes said that if Japanese authorities encourage increased domestic securities investment and extend that to GPIF, hundreds of billions of dollars could return to Japan. But if Japan becomes a large seller of U.S. Treasuries and stocks, the United States would gain the effect of a stronger yen while losing a major source of overseas demand for its assets.
