Financial warfare escalates as Japan strikes back, beginning to significantly sell off U.S. Treasury bonds.

Yellen issues an urgent warning, and the U.S. is truly panicked this time!

Last month, due to the strong U.S. dollar index, the exchange rate of the yen against the dollar hit a 34-year low, once breaking through the 160 mark.

Consequently, Japan began to urgently intervene in the foreign exchange market, using a total of 9.8 trillion yen, equivalent to $62.2 billion, to intervene.

However, at that time, the source of this money was kept a secret by the Bank of Japan, which consistently refused to disclose where it came from.

But now, a month has passed, and the data from the Bank of Japan has finally come out, revealing the truth.

It turns out that Japan is indeed significantly selling off U.S. Treasury bonds to save the foreign exchange market.

Let's look at a set of data: as of May, Japan's foreign exchange reserves were $1.23 trillion, a decrease of $47.4 billion from the end of April; among them, Japan's holdings of foreign securities decreased by $50.4 billion to $928 billion.

This means that the vast majority of this money came from the Bank of Japan selling off U.S. Treasury bonds, and this has been confirmed.

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In response to this action, Yellen immediately warned that foreign exchange intervention should be rare and not a regular tool.

The implication is that she is forgiving Japan this time for selling off U.S. Treasury bonds, but Japan should not do it again!

It is evident that the U.S. is very panicked about Japan's action of selling off U.S. Treasury bonds.

This is because, as the crisis of U.S. Treasury bonds intensifies, there are fewer and fewer global buyers, and if Japan continues to sell off a large amount of U.S. Treasury bonds, the risk of a U.S. Treasury bond explosion will only increase further.

However, the reality is that with the yen depreciating day by day, Japan only has two ways to go: one is to continue selling off U.S. Treasury bonds to save the foreign exchange market; the other is to raise interest rates on the yen to suppress the domestic exchange rate.

In fact, there is another way, which is to hope that the U.S. dollar can also cut interest rates earlier.

But this way, Japan is completely pinning its fate on others.

Moreover, Japan may not be able to wait for this day.

So today, let's talk about what measures Japan will take next to suppress the yen exchange rate?

What does this mean for the global economy?

Let's first discuss whether Japan's continuous selling of U.S. Treasury bonds to save the foreign exchange market can work?

It can be said that the effect of using foreign exchange intervention in the foreign exchange market is always short-lived, which is a temporary solution.

Let's take last month as an example, after Japan used a large amount of foreign exchange reserves to intervene in the foreign exchange market, the yen exchange rate against the dollar rose from 157 to around 153, but after a few hours, the yen fell back to around 156.

This means that if the yen's foundation is not solid, this move will only deter speculators who are heavily shorting the yen.

Moreover, can Japan sell U.S. Treasury bonds if it wants to?

Will the U.S. agree?

Otherwise, Yellen would not have warned.

Speaking of which, if Japan really does this, it is likely that U.S.-Japan relations will be rewritten.

So, Japan dares to do this secretly, but it does not have the courage to do it openly.

Next, let's talk about whether Japan can make it by raising interest rates on the yen?

Japan's policy of negative interest rates was finally broken in March this year, and the yen welcomed its first interest rate hike in 17 years.

Faced with Japan's current economic situation, more and more people are now predicting that the Bank of Japan will raise interest rates again in July this year to change this situation.

But the problem is that the Japanese economy has contracted or stagnated for three consecutive quarters, with Japan's GDP in the first quarter down 2.0% year-on-year.

If the yen is to raise interest rates again at this time, does Japan want to lose the next thirty years again?

It can be said that the yen's strong interest rate hike is also a very difficult path!

So when faced with the dilemma of the Japanese economy, you have to admire their wisdom, they have a lot of tricks.

Now, several economists predict that Japan will slow down the pace of buying U.S. Treasury bonds by about 6 trillion yen per month.

Look, how nice they sound, I am slowing down the purchase of U.S. Treasury bonds, I am not selling U.S. Treasury bonds.

But the effect is the same, that is, both are reducing the scale of U.S. Treasury bonds.

Secondly, raise the short-term benchmark interest rate of the yen to suppress the depreciation of the yen against the dollar.

Here is the key point, it is the short-term benchmark interest rate!

This time Japan is going to deal with this matter in a balanced way, that is, to let its own economy suffer a little loss to show the U.S., because I have raised a little bit of short-term interest rate, and then it can be done legitimately by reducing the scale of U.S. Treasury bonds, thus suppressing the devaluation of its own currency in both ways.

Now you can't say I'm not being considerate, right?

Because I'm risking my life to play with you.

So far, I can only use one word to describe it, which is "brilliant".

So if Japan really does this, what does this mean for the U.S. and the global economy?

In fact, Japan is also throwing the difficulty back to the U.S. again.

Because I can only raise interest rates once more, and it is still short-term interest rates, but I can sell U.S. Treasury bonds many times.

If you don't want me to continue selling U.S. Treasury bonds, then your U.S. dollar should cut interest rates as soon as possible!

This is also after the euro cut interest rates and stabbed the U.S. in the back, Japan has made another move against the U.S.

This can also be said to be adding bricks and tiles to the reshaping of the global economic order!

So far, it can be said that all countries in the world are playing a game of chess, and all countries' opponents are pointing their swords at the U.S., forcing the Federal Reserve to accelerate the pace of interest rate cuts, and the U.S. financial turmoil is really imminent!