Former BitMEX CEO Arthur Hayes published a new essay on Woomph titled "Drawdown", analyzing risks stemming from Japan's bond market and yen.

Core argument

Hayes argues that turmoil in the Japanese government bond market and a weaker yen could trigger a covert expansion of dollar liquidity.

He outlines channels where the Federal Reserve and U.S. Treasury could affect Japanese markets via currency and debt operations without formal QE.

According to Hayes, these measures would help the United States reduce its debt-servicing burden and simultaneously weaken other economies' external positions.

Transmission and effects

Hayes suggests that such covert liquidity expansion could alter cross-border capital flows, repricing risk assets and shifting relative currency valuations.

He notes that the mechanism does not require formal open-market asset purchases yet may produce similar balance-sheet outcomes for U.S. authorities.

The essay examines potential transmission channels to global financial conditions, including changes in sovereign yields and capital allocation across markets.

Policy implications

Hayes details potential policy coordination between U.S. authorities and market outcomes, highlighting international consequences for interest rates and exchange rates.

The piece emphasizes that interventions structured as currency or debt operations could, in practice, expand U.S. balance sheets while avoiding the label of conventional quantitative easing.