Japan selling U.S. bonds may prompt the Fed to increase money supply, potentially triggering a new round of pump in the crypto market.

Against the backdrop of global economic turmoil and fluctuations in financial markets, the Japanese banking system is facing severe challenges brought about by the Fed's interest rate hike cycle. By analyzing the foreign exchange hedging strategies of Japan's Norinchukin Bank and other Japanese commercial banks in their investments in U.S. Treasuries, it can be seen that these banks are compelled to sell U.S. Treasuries due to the widening interest rate differential and rising foreign exchange hedging costs.

The FIMA repurchase mechanism may play a key role in maintaining market stability. This mechanism allows central bank members to pledge U.S. Treasury securities and receive additional overnight U.S. dollars. The increased use of the FIMA repurchase mechanism indicates that dollar liquidity is rising in the global currency market, which may have a positive impact on Bitcoin and encryption currencies.

As the interest rate differential between the US dollar and the Japanese yen widens, the foreign exchange hedging purchases of US Treasury bonds by Japanese banks have shifted from slight positive returns to significant negative returns. Japanese banks, such as Norinchukin Bank, have had to sell US Treasury bonds to cut losses. However, this could lead to a surge in US Treasury yields, significantly increasing the federal government's financing costs.

To avoid this situation, U.S. Treasury Secretary Yellen may ask the Bank of Japan to purchase these bonds and use the FIMA repo mechanism to exchange U.S. Treasury bonds for newly created dollars from the Fed. This approach can prevent a large-scale dumping from impacting the market.

The use of the FIMA repurchase mechanism may increase the supply of dollars, thereby bringing new pumping momentum to the crypto market. In an election year, the U.S. government has a strong motivation to maintain a low interest rate environment, which may further promote the use of this mechanism.

For investors, the current situation may be suitable for gradually shifting funds from high-yield stablecoin staking products to crypto risk assets. The predicament of the Japanese banking system may bring a new round of liquidity support to the crypto market, becoming another supporting factor for the crypto bull market.