Investment Banks: Japan's Use of Fed Facility May Test Resolve on Yen

Evercore ISI stated that a rarely used Federal Reserve liquidity facility might allow Japan to avoid supporting the yen by selling U.S. Treasuries, but long-term reliance on the tool could encourage markets to test the resolve of both the United States and Japan.

The "Foreign and International Monetary Authorities Repo Facility" (FIMA Repo Facility) allows overseas institutions to use their holdings of U.S. Treasuries as collateral to obtain U.S. dollars, thereby avoiding the need to sell bonds in the open market to raise cash. The facility was established during the pandemic in 2020 to enable counterparties to access liquidity without severely disrupting the U.S. Treasury market, and it subsequently became a permanent tool in July 2021.