jakiro
Author: Bitmex co -founder Arthur Hayes; compile: Deng Tong, Bitchain Vision
I just read the first “Red Mars” in the trilogy of Kim Stanley Robinson.One of the characters in the book is Hiroko AI, a Japanese scientist. When mentioning the situation that Mars colonists cannot control, she often says “there is no way.”
When I thought of a title for this “essay”, this sentence came to my mind.This short article will pay attention to the Bank of Japan, who has become a victim of the American WTO policy.What did these banks do?In order to obtain considerable returns from the yen deposit, they engaged in the US dollar against the yen arbitrage transactions.They borrowed from the elderly in Japan in Japan and looked around in Japan, and found that the yields of all “safe” government and corporate bonds were close to zero, so they concluded that providing loans to the United States through the US Treasury (UST) market is a kind of loan is a kind of loan.Better capital use, because these bond yields can be more than many percentage points even if they are completely foreign exchange hedging.
However, when inflation occurred in the United States, the Fed had to take action.The Federal Reserve raised interest rates at the fastest speed since the 1980s.As a result, this is bad news for anyone holding the US.From 2021 to 2023, the rising yield rose has created the worst bond rotation since the 1812 war.What should I do!
Beginning in March 2023, the United States had the first banking disaster in the bottom of the financial system.In less than two weeks, the closure of the three major banks has led the Fed to provide comprehensive support for all UST held on any U.S. bank or foreign bank’s U.S. branch asset liability statement.As expected, Bitcoin soared in a few months after the rescue plan was announced.
Since its announcement on March 12, 2023, Bitcoin has risen more than 200%.
In order to consolidate a rescue plan of about 4 trillion US dollars (this is the estimate of the US and mortgage loans supporting the total amount of mortgage support on the U.S. balance sheet), in March of this year, the Fed announced that the use of discounting windows was no longer deadly.If any financial institution needs to quickly inject cash to fill in a tricky loopholes that appear in the asset -liability statement due to negative assets “security” government bonds, the above window should be immediately used.What do we say when the banking system inevitably obtains rescue by depreciating currency and infringing human labor dignity?What should I do!
The Fed’s approach to U.S. financial institutions is correct, but while those foreigners who also purchase USS from 2020 to 2021 while global currencies have soared?Which country’s bank’s balance sheet is most likely to be broken by the Fed?Of course, it is a Japanese banking system.
The latest news is, we knowWhy do the Bank of Japan, which ranked fifth according to the scale of deposit, will sell foreign bonds worth $ 63 billion worth of foreign bonds, most of which are USS.
“The interest rates in the United States and Europe have risen, and bond prices have fallen, which reduces the Agricultural Forestry Central Government (Bitchain Vision Note: Agriculture and Forestry Central Government is a Japanese cooperative bank., Securita products, stocks, private equity and real estate investment.
The “NOCHU” of the Agricultural and Forestry Central Silvers is the first bank to surrender and announce that it is necessary to sell bonds. All other banks are engaged in the same transaction. I will explain this below.The huge bonds that banks may sell are well understood.
According to the coordinated investigation of securities investment in the International Monetary Fund (IMF), by 2022, Japanese commercial banks hold about $ 850 billion in foreign bonds.Among them, nearly $ 450 billion of bonds in the United States and about $ 75 billion in French debt -this number far exceeds the bonds issued by other large countries they hold.
Why is this important?Because Yellen will not allow these bonds to sell in the open market and soar the US yield.She will ask the Bank of Japan (BOJ) to purchase these bonds from the Bank of Japan, which is regulated.The Bank of Japan will then use the Federal Reserve’s foreign and international currency authorities (FIMA) repurchase facilities established in March 2020.FIMA repurchase facilities allow central bank members to pledge USD and receive newly printed US dollar banknotes overnight.
The increase in the FIMA repurchase agreement indicates that the global currency market increases.You all know what this means for Bitcoin and cryptocurrencies … This is why I think it is necessary to remind readers to pay attention to another secret to print money.I read the report of the Grandbone entitled “offshore dollar and US policy” in Atlanta’s Fed, and I realized how Yellen stopped these bonds from entering the open market.
Why is it now?
As the Federal Reserve hinted that the policy interest rates will be raised in March 2022, UST began to collapse at the end of 2021.It has been more than two years; why does a Japanese bank suffer after two years of pain?Another strange fact is the consensus of economists you should listen to: the US economy is on the edge of decline.Therefore, there are still several meetings for the Federal Reserve to cut interest rates.The interest rate reduction will push the price of bonds.Once again, if all “smart” economists tell you that the relief is coming, why do you want to sell it now?
The reason is that NOCHU purchased UST for foreign exchange hedging, from slightly positive interest differences to huge negative differences.Before 2023, the differences between the US dollar and the yen exchange rate were ignored.Subsequently, the Federal Reserve and the Bank of Japan run counter to the Bank of Japan, raising interest rates, while the Bank of Japan adheres to -0.1%.With the spread of interest spreads, the cost of hedging the risk exposure of the US dollar in the US dollar exceeds the high yields provided.
The following is its working principle.NOCHU is a Japanese bank with a yen deposit.If it wants to buy a higher yield, the bond must be paid in US dollars.Nochu will sell yen today and buy the US dollar to buy the bond; this is completed in the spot market.If this is everything that NOCHU does, and from now to the increase in the yen during the expiration of the bond, nochu will lose money when selling the US dollar back to the yen.For example, you buy USD 100 yen today and sell them at 99 dollars tomorrow; the US dollar is weakened and the yen will strengthen.Therefore, NOCHU will sell the US dollar and purchase the yen (usually three months long -term) to hedge the risk.It will roll forward every three months until the bond expires.
Usually, the amount of 3M is the most liquid.That’s why banks like NOCHU use rolling 3 million long -term to hedge 10 -year currency purchases.
As the Fed’s policy interest rate is higher than that of the Bank of Japan, the interest spread between the US dollar against the yen has expanded, and the long -term point becomes negative.For example, if the US dollar yen is 100 and the dollar yield next year is 1%higher than the yen next year, the price of the 1st period of long -term transactions of the US dollar yen should be around 99.This is because if I borrowed 10,000 yen at 0% to buy today’s $ 100, and then deposited $ 100 to earn 1%, I will have $ 101 a year later.What is the one -year long -term price of US dollar yen that offsets the US dollar income?~ 99 usdjpy, this is the principle of no profit.Now imagine that I did all of them to buy USS, and its yield was only 0.5%higher than JGB of similar periods.I basically paid 0.5% of the negative profit margin to hold this position.If this is the case, NOCHU or any other bank will not conduct this transaction.
Back to the chart, as the spread expands, the 3 million long -term points have become so negative, so that the yield yields of US exchange bond foreign exchange yen yen yields are less than only purchased Japanese Treasury bonds that are priced at the yen.This is what we saw from the mid -2022, and the red line representing the US dollar passed through the X -axis below 0%.Please keep in mind that the Bank of Japan, which purchase Japanese government bonds with yen, does not have monetary risks, so there is no reason to pay hedging fees.The only reason for this transaction is when the foreign exchange ride yield & gt; 0%.
Nochu is more uncomfortable than FTX / Alameda Polycule participants.Based on the market price, the US, which is purchased from 2020 to 2021, is most likely to drop by 20% to 30%.In addition, the cost of hedging from foreign exchange rising has been incompetent to more than 5%.Even if Nochu believes that the Federal Reserve cuts interest rates, 0.25% of interest rate cuts will not reduce the cost of hedging, and it will not increase bond prices to stop bleeding.Therefore, they must abandon the US.
Any plans that allow NOCHU pledges to pledge USD in exchange for a new US dollar cannot solve negative cash flow problems.From the perspective of cash flow, the only thing that allows NOCHU to turn losses is a significant reduction in the policy interest rate gap between the Fed and the Bank of Japan.Therefore, in this case, any plan to use the Fed (such as allowing foreign banks to repurchase US dollar repurchase USD and mortgage loan support for securities support for securities) is not helpful.
When I wrote this article, I was thinking about NOCHU to take any other financial tricks to avoid selling bonds.But as I mentioned above, the existing plans to help the bank say that the loss of losses is a certain loan and exchange.As long as Nochu has bonds in a certain way, form, or form, the currency risk still exists, and hedging must be performed.Only after selling bonds can NOCHU relieve foreign exchange hedging, which will cause high costs.This is why I believe that Nangzhong’s management will explore all other options, and selling bonds is the last means.
I will explain why Yellen feels uneasy about this situation, but now, let’s close Chat GPT and use our imagination.Is there a Japanese public institution that can purchase bonds from these banks and store the risk of interest rates in the US dollar without having to worry about bankruptcy?
Who is it?
It’s a fucking Japanese Bank.
Rescue mechanism
The Bank of Japan is one of the few central banks that can use the FIMA repurchase tool.This allows it to cover the US price in the following way:
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The Bank of Japan “suggests” gently. Any Japanese commercial banks that need to withdraw should not sell USS on the open market. Instead, they will directly transfer these bonds to the Bank of Japan’s balance sheet and get the current final transaction price.It will not affect the market.Imagine that you can sell all FTT tokens at the market price, because Caroline ELISON can support any necessary scale.Obviously, this is not good for FTX, but she is not a central bank with a printmaker.Her banknote printing machine only printed up to $ 10 billion in customer funds.The Bank of Japan’s transaction is infinite.
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Then,The Bank of Japan exchanged USD to the US dollar banknote printed by the FIMA repurchase tools through the FIMA.
Avoiding the free market is so easy.Guide, this is the freedom worth struggling!
Let’s ask a few questions to understand the meaning of the above policies.
Someone must have lost money here; bond losses caused by rising interest rates still exist.
The Bank of Japan still defaults to bonds because they sell bonds to the Bank of Japan at the current market price.The Bank of Japan is currently facing UST long -term risks.If the price of these bonds falls, the Bank of Japan will have unrealized losses.However, this is the same risks as the Bank of Japan’s current tens of trillions of Japanese government bond investment portfolios.The Bank of Japan is a quasi -government entity that does not have to go bankrupt or has to comply with capital adequacy ratio.It also does not have risk management departments. If its risk value rises due to huge DV01 risks, the department will forcibly reduce the position.
As long as the FIMA repurchase protocol exists, the Bank of Japan can repurchase agreement per day and hold USS until expire.
How does the US dollar supply increase?
The repurchase agreement requires the Fed to provide US dollars to the Bank of Japan for USD.The loan is issued every day.The Fed obtained these dollars through the use of money printing machines.
We can monitor the US dollar in the system in the system every week.The bank’s project is “repurchase agreement -foreign officials”.
As you can see, the FIMA repository is currently very small.But the selling has not yet begun. I think there will be some interesting calls between Yellen and the President of the Bank of Japan.If I am right, this number will rise.
Why help others?
As we all know, Americans do not sympathize with foreigners, especially those who do not speak English and look very interesting.
Faced with potential revenge, Yellen’s rescue is because without a new US dollar to absorb these shit bonds, all large Japanese banks will follow Nochu’s footsteps and sell their USE investment portfolios to relieve pain to relieve painEssenceThis means that US $ 450 billion in USD will quickly put in the market.This cannot be allowed because the yield will soar and make the federal government’s funds extremely expensive.
In the words of the Fed’s own, this is why the creation of the FIMA repurchase tool:
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In March 2020, during the “cash” period, central banks from various countries sold US Treasury bonds at the same time.
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And stored the money in the overnight repurchase agreement of the New York Fed.In this regard, the Federal Reserve proposed to use the US dollar to provide overnight cushion to the central bank.
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The New York Fed is custody of US Treasury bonds as a mortgage with interest rates higher than private repurchase interest rates.
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Such prepayments will enable the central bank to raise cash without mandatory sale of securities.
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The national bond market is already nervous.
Remember from September to October 2023?In those two months, the UST yield curve became steeper, resulting in the S & P 500 index fell by 20%, and the yield of 10 -year and 30 -year USD exceeded 5%.In response, Bad Gurlen changed most of the debt issued into short -term Treasury vouchers to exhaust the cash in the Fed’s inverse repurchase plan.This has stimulated the market. Starting from November 1, the competition of all risk assets (including cryptocurrencies) began.
I am very confident. In the election year, when her boss is facing the felony of the “Orange Man”, Yellen will fulfill her “democracy” duty and ensure that the yield is maintained at a low level to avoidDisaster in the financial market.In this case, what Yellen needed to call Ueda, instructing him not to allow the Bank of Japan to sell USS on the open market, and he should use the FIMA repurchase tool to absorb supply.
Trading strategy
Everyone pays attention to when the Federal Reserve will start to cut interest rates.However, it is assumed that the Federal Reserve cuts interest rates at 0.25% at each next meeting, and the dollar spread to the US dollar against the yen is +5.5% or 550 basis points or 22 times of interest rate cuts.In the next 12 months, two, two, three, or four rate cuts will not be substantially lowered.In addition, the Bank of Japan does not show their willingness to increase policy interest rates.The Bank of Japan may slow down the pace of public market bond purchase.The reason why commercial banks in Japan must sell foreign exchange hedging UST investment portfolios have not been resolved.
That’s why I am confident that I am full of confidence in the risk of cryptocurrency risks from Ethena pledged US dollars (income 20-30%).In view of this news, the Bank of Japan has no choice but can only withdraw from the US market.As I mentioned, in the election year, what the Democratic Party in power is the least needed is that the US -yield has risen significantly, which will affect the major matters of their financial care of the voters in their medium voters.That is, mortgage interest rates, credit card interest rates and car loan interest rates.If the yield of Treasury bonds rises, these will rise.
This is the reason why the FIMA repurchase tool is established.What is needed now is Yellen firmly insisted on letting the Bank of Japan use it.
As many people start to doubt where the next impact of the US dollar liquidity will come from, the Japanese banking system will throw a folding and tidy US dollar banknote on the legs of cryptocurrency investors.This is just another pillar of the cryptocurrency bull market.The US dollar supply must increase to maintain the current dirty financial system based on the US dollar.
