Tommaso:
How much US Treasury paper do they [Jap] hold, anyway?
A lot, about $800 bil.
In any case, selling treasuries seems like a Catch 22 for Japan; to do so lowers the value of those assets.
I agree. This was completely unanticipated. No one had believed that the Japanese would do something that would hurt their exports. The Japanese banks are now against a wall because the BOJ cannot cut interest rate any further. The banks must increase their Tier-I risk-based capital. How will they do it? Sell risky bank assets. They sold inter-company stock holdings last week. Japanese markets fell sharply. The other assets (loans) are still risky. They have no option but to infuse capital. US Fed cannot make clandestine deposits in Japanese banks. The Japanese govt thus decided (?) to prop up Jap bank capital by infusing preferred stock. How would they do it? Sell the US Treasury. But, this will hurt exports. Which one is the worse evil: the collapse in Jap Banks or hurting exports? Well, the entire Japanese enterprise will collapse as markets lose confidence in the Jap banks. Thus, the unexpected Jap Govt move will unwind the US prosperity somewhat, IMO.
If the Japanese government, or whoever holds them (banks, insurance companies) starts selling US Treasuries, who would they sell them to?
They will offer in the open market. Bullish bond investors will buy up to a point or may not even move to buy until the price drops, IMO. The Fed will also buy, but they cannot stomach so much, as it will increase inflation. Either way (inflation or over supply of bonds) will make the price to go down, IMO. I do not think we will see the full effect, though, until Fed actually raises the interest rate.
Sankar |
