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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (3284)	3/31/2004 7:13:49 PM
From: russwinter	Read Replies (3) \| Respond to of 116555

Here's how I think it works, but it sounds like you have some good data to support, clarify, or refute, so maybe we can get to the bottom of it? Per the RBC report, the MoF had a cumulative slush fund (the Foreign Exchange Fund: FEF) to raise intervention funds(by borrowing bills (FEFBs)in Yen). The legislature gave them a ceiling of a whopping Y79 trillion (about US$650 billion at the old exchange rates). In each of the last two fiscal years (ending today 3/31), this ceiling was raised by Y10 trillion. I don't know what it is for the now starting FY 2004, but if it's only Y10 trillion, that's only two months worth at the current pace. Starting last fall, the MoF started to approach the authorized ceiling. I'm not sure if the legislature gave them a supplemental increase for FY2003, that's why I asked, and you appear to suggest they got another Y10 trillion?. At any rate it seems the ceiling was hit at some point (after all, during intervention in the last five quarters they ripped though about Y35 trillion). Message 19857282 Message 19970088 By the way, since the yen was borrowed in the market, I don't believe it was sterilized, the BoJ printed extra Yen to absorb it, otherwise money would have been sucked out of Japan, and to the US. That's not what happened. So to get around all this ceiling problem and to avoid going back to elected representatives of the Japanese people to subsidize Americans, the MoF instead goes to the BoJ and says, "Hey we have US$467B in foreign securities reserves, why don't we sell you some of these depreciating Old Maid cards to you on a temporary basis for Yen (which you can print). You know, just for awhile, we'll show these currency speculators whose boss, screw them! Perhaps you have access to how much of this has been conducted, but one news item I spotted indicated 4.99 trillion Yen (one tenth of their total reserve) just in Feb, and that was a "light" month. Obviously it doesn't take too many months like that to chew through a lot (or all) of reserves, making it a not so "temporary" situation. I think the BoJ has a big issue with this now, and the MoF does too, they're just playing bad cop, holding people off with a BB gun. So when you consider that the BoJ has had to be the bag holder of the USD portfolio the MoF has sold to them, and that the MoF is going through foreign securities reserves like no tomorrow, and that lots of yen has been printed to support all this activity, and that the legislature has losses on the FEF activity they support, is it any small wonder that folks are POed and are pointing fingers? I just don't see $50 billion a month interventions as long for this world, they just don't have the funds for it. In fact, I see this as really at the boiling point.