Morgan Chase: United States Treasury intervention in Japan has limited firepower

On 3 August, Chase Morgan stated that the United States Treasury had limited liquidity resources to support further coordination of monetary interventions with Japan, but that its firepower could be significantly expanded if officials took more unconventional measures. The strategist Junya Tanase, among others, wrote that, as of June, the Treasury's Exchange Rate Stabilization Fund held approximately Euro13 billion in denominated assets and $25.5 billion in assets, which dwarfed the scale of Japan's interventions between US$35 billion and US$60 billion between 2022 and 2026. According to Chase Morgan, the Treasury could significantly increase its firepower by converting its holdings of the International Monetary Fund Special Drawing Rights (SDRs) into United States dollars, as well as by converting foreign currency assets into United States dollars. In this case, the Treasury would theoretically have access to a maximum of US$ 187 billion, while the participation of the Fed could effectively double the scale of any intervention. However, they wrote: “We do not believe that the Ministry of Finance can intervene with unlimited capacity, because the Exchange Stability Fund has limited resources and new funds may need to be allocated by Congress”. Kim Xian