Why the FIMA Repo Facility Can’t Save Japan (Or the U.S.)

Japan’s long experiment with near-zero rates and relentless deficit spending is hitting its limits, and the consequences are eventually going to hit U.S. markets. The yen’s slide toward levels not seen in decades forced Tokyo into repeated interventions, and for the first time since 1998, Washington joined in to save the U.S. and the world from a collapsing yen (Washington intervened in 2011 after Fukushima, but in the opposite direction).

The Fed just sold euros to help prop up Japan’s currency, but Bessent wants them to go even further with COVID-inspired emergency measures. 

Enter the Fed’s Foreign and International Monetary Authorities (FIMA) Repo Facility. This obscure COVID-era “emergency” tool (i.e., bailout mechanism) was invented in March 2020. This tool makes it so that, during a crisis, foreign holders of Treasuries can raise dollars without having to dump large amounts of U.S. government debt in the process.  

The Fed and Treasury don’t want Japan selling off their huge U.S. debt holdings to raise the dollars it needs for yen intervention. Bessent wants to prevent countries from dumping Treasuries by any means necessary, including using more robust and little-used measures to kick the can down the road.