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http://www.howestreet.com/mainartcl.php?ArticleId=1556excerpt: The Bank of Japan (BOJ) is often referred to as “Federal Reserve East” as it regularly coordinates its monetary policy with the American central bank. Over the last few years, the BOJ has spent considerable resources (trillions of Yen) to support the U.S. Dollar. In early 2003, Japan publicly stated that its central bank would prop up the dollar should it drop sharply following the then upcoming invasion of Iraq. The reason most commonly cited for Japanese intervention in the currency markets (i.e. buying dollars) is that Japan lives and dies by its ability to export goods, and therefore the Yen must be kept competitive with the Dollar and other currencies.
Another motive for BOJ intervention lies with the old phrase: “If you owe the bank $100,000, the bank owns you; but if you owe the bank $100 million, you own the bank.” Of course $100 million is just peanuts considering that Japan holds $700 billion worth of United States Treasury debt. Any hiccup in the U.S. economy and the market value of those Treasury holdings will suffer. Japan’s willingness to accept U.S. treasuries is nothing more than a gigantic vendor finance program!
The final and perhaps least-discussed reason why the BOJ has historically said “How high?” when asked to “jump” by the Fed is the geopolitical situation. As discussed above, from the end of World War II up until today, Japan has been 100% dependant on the United States for its security. This arrangement served both sides well for more than half a century but, as we have shown you, things are beginning to change. A Japan that does not rely on the United States for its security means that the BOJ will no longer feel the need to cooperate with the Fed. As a result, a rearmed Japan will realize that it has an even more powerful Dollar weapon than China (the second largest holder of U.S. Treasuries) does. Eventually, these two Asian central banks will stop accumulating treasuries and possibly begin to unload them, which could trigger a Dollar collapse. Even more threatening to the Dollar is a possible alliance among Asian countries with the desire to form their own regional currency similar to the Euro. While all of these scenarios are just talk, the common denominator among them is a Japan which no longer relies on America for its protection. The bottom line is that the more you hear about the changing role of Japan’s military, the closer we are to a major Dollar devaluation.
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