Evercore ISI said that a rarely used Federal Reserve liquidity tool may help Japan avoid supporting the yen by selling off US Treasury bonds, but if it relies on this tool for a long time, it may instead induce the market to test the determination of the US and Japan to boost the yen. Foreign and international monetary authorities' repurchase mechanisms allow overseas institutions to use their holdings of US Treasury bonds as collateral to obtain dollars without having to sell bonds on the open market to raise cash. The tool was established during the 2020 pandemic to allow counterparties to obtain liquidity while avoiding excessive disruptions to the US Treasury bond market, and became a permanent mechanism in July 2021. However, the tool has limitations, and the daily usage limit for each counterparty is $60 billion. Evercore ISI strategists Marco Casiraghi and Gang Lyu said that this is only slightly higher than Japan's estimated single-day intervention in the foreign exchange market last Thursday. The two strategists wrote in a report to clients on Monday that this limits the tool's role in continuing intervention and also raises questions about whether the US is willing to support repeated and large-scale foreign exchange interventions. “We believe that focusing on this US Federal Reserve buyback tool with a quota limit may be counterproductive and induce the market to test the determination of the US and Japan when they need to boost the yen through large-scale sell-off of US Treasury bonds,” they said.

Evercore ISI said that a rarely used Federal Reserve liquidity tool may help Japan avoid supporting the yen by selling off US Treasury bonds, but if it relies on this tool for a long time, it may instead induce the market to test the determination of the US and Japan to boost the yen. Foreign and international monetary authorities' repurchase mechanisms allow overseas institutions to use their holdings of US Treasury bonds as collateral to obtain dollars without having to sell bonds on the open market to raise cash. The tool was established during the 2020 pandemic to allow counterparties to obtain liquidity while avoiding excessive disruptions to the US Treasury bond market, and became a permanent mechanism in July 2021. However, the tool has limitations, and the daily usage limit for each counterparty is $60 billion. Evercore ISI strategists Marco Casiraghi and Gang Lyu said that this is only slightly higher than Japan's estimated single-day intervention in the foreign exchange market last Thursday. The two strategists wrote in a report to clients on Monday that this limits the tool's role in continuing intervention and also raises questions about whether the US is willing to support repeated and large-scale foreign exchange interventions. “We believe that focusing on this US Federal Reserve buyback tool with a quota limit may be counterproductive and induce the market to test the determination of the US and Japan when they need to boost the yen through large-scale sell-off of US Treasury bonds,” they said.