The United States, Japan, and South Korea have joined forces to intervene in the exchange rate. Today, Besson's tweet is equivalent to officially acknowledging the US government's support for Japan's intervention in the exchange rate. Besson also specifically pointed out the FIMA Repo Facility (allowing foreign official institutions to use US bonds as collateral to temporarily exchange US dollars with the Federal Reserve, without having to sell US bonds in the public market). The purpose of expanding it is precisely to enable Japan and other countries to "borrow US dollars to buy Japanese yen" and avoid large-scale selling of US bonds as much as possible, thereby reducing the impact on the US bond market. This is also a clear signal released by the government to "protect the stability of US bonds", which is likely to lead to a periodic peak in US long-term bond yields. Will it trigger a large-scale and rapid decline in carry trades? Personally, the probability is not high and it is more likely to be an orderly exit. Last year's tweet talked about several indicators of carry interest trading 1) The US Japan exchange rate needs to experience a significant and rapid downward trend, such as from early July to early August 2024: the US Japan exchange rate was around 161.5 at the beginning of July, with a peak of around 161.6; About 150 at the end of 7; 8.5 as low as about 144 (a sharp drop of 15-17 points in about 2 weeks) Recently, it has fallen from about 164 to about 156 (with a relatively small decline of about 7-8 points), and the difference is that in the past 24 years, funds have spontaneously withdrawn from the US dollar and returned to the Japanese yen. Recently, it is clear that the Japanese government has been buying Japanese yen; The driving force behind exchange rate fluctuations is slightly different. 2) CFTC Japanese Yen Futures Net Short Position (non-commercial/speculative) Current: Approximately -163.4K contract (latest reporting period around July 28/31), close to the historical high range, and still increasing in the past two weeks (approximately -152K in the previous week, with an additional increase of approximately 11K). The exposure scale roughly corresponds to the order of billions of dollars. Compared to 2024, the peak net short position of Japanese yen futures in July 2024 was approximately -160K to -182K, followed by a sharp decline of approximately 100K to -73K by early August, and then a rapid bullish trend. The rapid ebb of carry trades will be accompanied by a significant decrease in net short positions in yen futures, indicating that speculative carry positions are still being dismantled on a large scale. I haven't seen this sign yet 3) Financial pressure and leverage indicators (such as cross currency basis) USD/JPY basis swap: Approximately -42bps for the 3-month period around Q2 2026, wider than the post pandemic average but far below crisis levels (previously ranging from -100bps to -200bps in 2008 or 2020). There is no strong signal of "US dollar financing pressure forcing large-scale liquidation". 4) US Japan 10-year treasury bond bond spread Currently around 1.95% (approximately 4.75% in the US and 2.80% per day). The spread has significantly decreased below the 2% threshold in the framework to<2% (framework acceleration threshold) Overall, the recent decline in the US Japan exchange rate was a joint intervention by the US and Japanese governments, rather than a spontaneous action by market funds. Looking back at the period from early July to August 5th in 2024, the rapid decline in the US Japan exchange rate was accompanied by a correction in the US stock market. In July of this year, the US stock market adjusted, and the US Japan exchange rate continued to rise until reaching a high of 163.9 on July 29th last Wednesday, indicating that the US stock market adjustment in July was not related to the withdrawal of Japanese yen funds. The triggering event for the high tide of interest rate trading at the end of July and beginning of August in 2024 was the unexpected interest rate hike by the Bank of Japan, the expectation of balance sheet reduction, and the significant shortfall in US non farm payroll in July 2014 (recession concerns), which increased recession panic and liquidity shock. What will happen to this week's non farm payroll data if the Bank of Japan remains inactive this time? If the non farm payroll falls significantly short of expectations this week, the market may be concerned about both the expected increase in recession and interest rate cuts, as well as concerns that the recession will further lower returns. Some yen funds will withdraw from the United States, causing a small impact, In addition, joint intervention and support for Japan's interest rate hike/currency normalization can help narrow the US Japan interest rate differential, which may alleviate the pressure of a strong US dollar in the long run; If the Japanese yen stabilizes and the pressure of carry trades is released in an orderly manner, it may also bring about a certain easing of risk appetite, indirectly benefiting US Treasury bonds overall The interest rate spread has narrowed, and the US Japan exchange rate has fallen. Compared to the same period in 2024, the current environment is more "expected to be sufficient+buffered", with a lower probability and magnitude of severe ebb tide, and the impact amplitude is expected to be smaller than that of July and August 2024. We will continue to observe the US Japan exchange rate, this week's US July non farm payroll data, next week's CFTC update, as well as the actions of the Japanese central bank/government and the liquidity operations of the Federal Reserve. This article is sponsored by @ bitget_zh, titled 'Bitget Buying US Stocks: Instant Entry, Smooth Trading'