December 18: Japan Torches US Treasury Market #uspolitics #economics #japan #bankofjapan #ustreasury

December 18: Japan Torches US Treasury Market #uspolitics #economics #japan #bankofjapan #ustreasury

Keep your eyes on December 18. The Bank of Japan is expected to hike rates during its December meeting on the 18th. It's part of a new fiscal plan to reinvigorate the flagging Japanese economy, which has been struggling under low growth, negative interest rates, and an aging population since the 1990s. H, that feels familiar. Despite attempts under aomics to encourage investment and growth, the Japanese economy was the engine that couldn't. But things have begun to change. Japan is in a new determined period of growth. Unfortunately, it's driven by inflation. Now, it remains to be seen whether the inflation that they're experiencing is the result of price pressure from demand or the hangover of imported inflation from the pandemic era. Now, any increase in Japanese bond yields could spell disaster for the United States. While the Japan 10-year bond yield has yet to reach the heights of the 80s and early 90s, it has returned to the 2000's era level pre-inancial crisis. The 10-year is a double-edged sword in that it's a reflection of confidence and risk. A high yield typically means less faith in the institution issuing it. All right, so back to December 18th. Why is it so important? Well, it's also the day that we get the new Treasury International Capital or TIK data from the US Treasury, the same day as the BOJ holds its FOMC meeting equivalent to determine the future of rate hikes in Japan, which is no longer a matter of if, by the way, but when and how many. And why do these matter taken together? Well, the UK, Japan, and US hedge funds that are doiciled in the Cayman Islands are the largest holders of US debt. And hedge funds, as we've already covered before, are buying treasuries not because they're patriotic, but because they're taking advantage of something called the basis trade, which is basically arbitrage in the short-term Treasury market. So, if US rates continue to move upward, these trades could unwind in short order, meaning they'll just start selling off US treasuries. Now, the UK holds the debt continually because there are Sorry, not sorry. But the Japanese and some others have also been participating in a form of arbitrage that's called the yen carry trade where they purchase a discounted yen converted to dollars and buy dollar denominated assets like US treasuries. Well, the yen and Japanese bonds are on the rise which means billions of dollars are right now already being repatriated in Japan. Translation: Sell America by Japan.

The Bank of Japan is hiking rates December 18th—the same day new Treasury data drops. Japan’s rising bond yields mean the yen carry trade is unwinding and billions are being repatriated out of US Treasuries. Sell America, Buy Japan is officially happening, and Trump’s economy is about to feel it.