The Bank of Japan may sell US Treasuries, the Fed may be forced to print money, and the crypto market may welcome a new bull run.

Against the backdrop of global economic turmoil and fluctuations in the financial markets, the Japanese banking system is facing severe challenges during the Fed's interest rate hike cycle. U.S. fiscal and monetary policies have had a profound impact on global markets. The foreign exchange hedging strategies of Japan Agricultural and Forestry Corporation and other Japanese commercial banks for U.S. Treasury bond investments are under significant pressure. In the context of widening interest rate differentials and rising foreign exchange hedging costs, these banks are forced to consider selling U.S. Treasury bonds.

Foreign and international monetary authorities ( FIMA ) repurchase mechanisms may play a key role in maintaining market stability. This mechanism allows central bank members to pledge U.S. Treasury securities and receive newly printed overnight dollars, potentially becoming an important tool to alleviate pressure on the Bank of Japan.

Japan's Norinchukin Bank recently announced that it will sell $63 billion of U.S. and European bonds, primarily U.S. Treasuries. This decision stems from rising interest rates in the U.S. and Europe, which have led to a decline in bond prices, reducing the value of the high-priced foreign bonds the bank purchased in the past and widening the paper losses.

According to data from the International Monetary Fund, Japanese commercial banks held about $850 billion in foreign bonds in 2022, of which nearly $450 billion were U.S. bonds. Such a large-scale potential dumping could have a serious impact on the U.S. Treasury bond market.

To prevent the surge in U.S. Treasury yields, U.S. Treasury Secretary Yellen may request the Bank of Japan to purchase these bonds and use the FIMA repurchase mechanism to exchange U.S. Treasuries for dollars. This practice will increase the liquidity of dollars in the global money market and may have a positive impact on Bitcoin and the crypto market.

The Bank of Japan has chosen to recognize losses at this point primarily due to the widening interest rate differential between the US dollar and the Japanese yen, which has caused foreign exchange hedging costs to exceed the higher yields of US Treasury bonds. Even if the Fed may cut interest rates in the future, a slight reduction will not significantly improve this situation.

To avoid a large-scale dumping impact on the U.S. Treasury market, the U.S. Treasury may collaborate with the Bank of Japan to absorb these bond supplies through the FIMA repurchase mechanism. This approach will increase the supply of dollars and could bring new upward momentum to the crypto market.

In the current situation, investors may need to reassess their investment strategies and consider increasing their allocation to encryption assets. As the challenges facing the global financial system become increasingly apparent, the crypto market may welcome new investment opportunities.