The Bank of Japan's selling of US Treasuries may drive the Fed to print money, bringing a new bull run to the crypto market.

Recently, under the backdrop of global economic turmoil and fluctuations in financial markets, the Japanese banking system faces significant challenges during the Fed's interest rate hike cycle. Japan's Norinchukin Bank recently announced it will sell $63 billion worth of U.S. and European bonds, raising concerns about the overall condition of the Japanese banking system.

Japanese commercial banks held about $850 billion in foreign bonds in 2022, of which nearly $450 billion were U.S. bonds. These banks originally sought higher yields through dollar-yen arbitrage trades, but this strategy has become unfeasible with the Fed's rapid interest rate hikes.

The widening interest rate differential between the US dollar and the Japanese yen has led to a significant increase in forex hedging costs, causing the hedged yield on US Treasury bonds to fall below that of Japanese government bonds. This has forced the Bank of Japan to consider selling US Treasury bonds.

However, U.S. Treasury Secretary Yellen may not allow these bonds to be heavily sold on the open market to avoid a spike in U.S. Treasury yields. She may ask the Bank of Japan to purchase these bonds and utilize the Fed's Foreign and International Monetary Authorities ( FIMA ) repurchase mechanism to obtain dollar liquidity.

The FIMA repurchase mechanism allows central bank members to pledge U.S. Treasury securities and receive newly printed dollars overnight. This operation will increase the dollar liquidity in the global money market and may have a positive impact on Bitcoin and the crypto market.

For investors, this situation may bring new investment opportunities in the crypto market. With the potential increase in dollar liquidity, crypto assets may benefit. However, investors still need to carefully assess risks and closely monitor market trends.

In general, the challenges facing the Japanese banking system may indirectly encourage the Fed to adopt a monetary easing policy, which could provide new momentum for the next bull run in the crypto market.