JPMorgan has warned that the U.S. Treasury may face constraints in sustaining foreign-exchange intervention because its reserve pool is limited. The note came after the Treasury, acting through the Federal Reserve Bank of New York, carried out its first yen-buying operation in a decade, with the size estimated at roughly $5 billion to $10 billion. Analysts said the Treasury operates differently from the Federal Reserve, whose balance sheet can be expanded. By contrast, the Treasury relies on a fixed pool of resources. If more intervention is needed, it may have to resort to what the analysis described as “extraordinary measures” to add firepower. The report also said the psychological deterrent effect of intervention could weaken if markets become more concerned that the Treasury’s reserves may be depleted quickly.
JPMorgan has warned that the U.S. Treasury’s foreign-exchange reserves are limited, making it difficult to sustain currency intervention over time.
The warning followed the Treasury’s first yen-buying operation in a decade, executed through the Federal Reserve Bank of New York, with an estimated size of about $5 billion to $10 billion.
According to the analysis, the Treasury depends on a fixed pool of resources, unlike the Federal Reserve, which can expand its balance sheet. If further intervention is required, the Treasury may be forced to use “extraordinary measures” to increase its available firepower.
The analysis added that the psychological deterrent effect of such action may also weaken as markets worry that the reserve pool could be exhausted quickly.
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