What I find more interesting though is a recent comment by the Treasury Secretary that deflation in Japan has "stopped". If that is true, then doesn't the yen carry trade unwind automatically? Kicking off the above cycle in the U.S.? It's only a matter of time, hence the need to expand the repo market as soon as possible.
But this presents so many more problems, because that repo market is meant to be used for short term funding, not refunding foreign creditors over long term debt. It also implies that the normal mechanisms to provide liquidity to Japanese investors and institutions who pull money out of the U.S. is not exactly solvent to the point to be able to do so. Hence, again, the need to expand the repo market.
So now, depending on how fast the yen carry trade unwinds, and how fast money moves back to Japan, combined with the fact they will likely stop funding further issuance of debt, all leads to a very bleak picture.
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Isn't that when the Fed stepped into the reverse repo market in order to allow the banks to extend and pretend?
The repo market angle is an important one. Not sure if this has been as widely reported but they want to expand the repo market to directly support the yen intervention: https://www.cnbc.com/amp/2026/08/03/bessent-fed-japan-yen-fi...
What I find more interesting though is a recent comment by the Treasury Secretary that deflation in Japan has "stopped". If that is true, then doesn't the yen carry trade unwind automatically? Kicking off the above cycle in the U.S.? It's only a matter of time, hence the need to expand the repo market as soon as possible.
But this presents so many more problems, because that repo market is meant to be used for short term funding, not refunding foreign creditors over long term debt. It also implies that the normal mechanisms to provide liquidity to Japanese investors and institutions who pull money out of the U.S. is not exactly solvent to the point to be able to do so. Hence, again, the need to expand the repo market.
So now, depending on how fast the yen carry trade unwinds, and how fast money moves back to Japan, combined with the fact they will likely stop funding further issuance of debt, all leads to a very bleak picture.