Arthur Hayes believes US Treasury Secretary Scott Bessent is preparing a way to strengthen the yen that could also force the Federal Reserve to create a large amount of new dollar liquidity. Arthur’s case centers on the Fed’s FIMA Repo Facility.

In his latest essay titled ‘Yen-Quake,’ Arthur said that Japan could place its US Treasury holdings with the Fed as collateral, borrow dollars, sell those dollars for yen, and then use the yen to buy Japanese assets.

However, what Arthur perceives to be important about the setup is the creation of dollars because a larger balance sheet at the Fed may feed directly into Bitcoin, Ether, gold, miners, and other financial assets.

Arthur says rate hikes and foreign asset sales would create pain Japan and the US want to avoid

Arthur lays out three ways Japan could strengthen the yen. The BOJ could raise rates aggressively. The government could push GPIF and other institutions to sell overseas assets and bring the cash back home.

Or the Ministry of Finance could borrow dollars from the Fed through FIMA and use those dollars to buy yen. Arthur believes the third choice is the one Washington and Tokyo can live with.

The interest rate gap makes choice one harder to implement. Arthur mentions that dollars currently yield some 2.75 percentage points more than yen. Traders can borrow yen at low rates and then swap them into dollars to purchase Treasury bills. Increasing interest rates in Japan will decrease this margin and support the yen.

On the other hand, the Bank of Japan holds a huge amount of Japanese government bonds due to the years of yield curve control policy. Increasing interest rates will make their bond holdings less valuable and create even greater unrealized losses for the central bank. Moreover, Japan’s government will have higher expenses as a result of increased yields on its debt.

“What happens when rates rise? Bond prices fall. The lower bond prices fall, the larger the BOJ’s unrealized loss. Unlike you readers, the BOJ can lose an infinite amount of yen because it can print them at will.”

Arthur also points out that a sudden jump in the yen can force traders who borrowed the currency to finance stocks and bonds elsewhere to close those positions quickly.

The second choice is politically cleaner inside Japan but far more dangerous for US markets. GPIF manages roughly $1 trillion to $2 trillion. Its 2014 allocation changes increased purchases of foreign stocks and bonds, creating a steady source of yen selling.

Arthur says Japanese officials are now discussing putting more money into domestic securities. If that policy eventually reaches GPIF, hundreds of billions of dollars could come back to Japan.

But also, if Japan becomes a major seller of US Treasuries and American stocks, Washington gets a stronger yen but also loses one of its biggest foreign sources of demand for US assets.

Arthur says neither country wants to find out what happens if USD/JPY falls from around 160 toward roughly 90, which he cited as a purchasing-power estimate of fair value.

Bessent wants FIMA to let Japan buy yen while the Fed supplies the dollars

Arthur says the third choice avoids forcing Japan to sell its Treasury holdings, with the Ministry of Finance pledging Treasury securities through FIMA. The Fed then lends dollars against that collateral. Tokyo sells those dollars in the currency market and buys yen. The yen can then go into Japanese government bonds and domestic stocks.

“MOF repos a treasury security and receives a dollar loan from the FIMA program at the Fed. MOF sells dollars and buys yen in the global forex market. MOF reinvests the yen domestically by purchasing JGBs and stocks.”

Arthur argues the Fed would have to create the dollars used for those loans. As FIMA borrowing grows, the central bank’s balance sheet would grow with it.

That is where his Bitcoin thesis starts. The collateral pool is huge. Arthur estimates that Japan’s government owns $1.143 trillion of US Treasuries. GPIF holds another $230 billion.

Together, that gives them about $1.373 trillion in Treasury securities.

For context, the Fed’s balance sheet expanded by roughly $4 trillion between 2020 and the end of 2021.

Arthur says the Fed’s Foreign Currency Subcommittee can alter FIMA’s operating rules. He expects Trump and Bessent to push Fed Chair Kevin Warsh toward the changes they need.

Arthur finished his essay saying that his existing positions are already centered on Bitcoin, physical gold, and gold miners.

Arthur also sees Ether as the major large-cap crypto alternative because “the narrative is the one major shitcoin that didn’t eclipse its all-time high in 2025; in addition, Ethereum will be the security layer for RWAs.”

Don’t just read crypto news. Understand it. Subscribe to our newsletter. It’s free.