Key facts
- Treasury Secretary Scott Bessent is involved in a coordinated effort with Japan to stabilize the yen.
- The U.S. intervention aims to prevent higher U.S. borrowing costs and support an ally.
- Bessent's notepad indicated potential yen purchases between $5 billion and $10 billion.
- The U.S. utilized its euro holdings to buy yen, bolstering its value without impacting the dollar.
- Bessent called for an expansion of the Federal Reserve's repurchase agreement facility.
Treasury Secretary Scott Bessent is spearheading a U.S. effort to stabilize the Japanese yen, a move reminiscent of his past as a currency trader. This coordinated intervention with Japan aims to prevent higher U.S. borrowing costs and support a key ally amidst competition with China.
The U.S. Treasury Department has stated that the yen is substantially undervalued and that its excessive volatility is undesirable. Analysts suggest the U.S. used its euro holdings to purchase yen, thereby bolstering its value without undermining confidence in the dollar. Bessent's notepad reportedly indicated plans for yen purchases ranging from $5 billion to $10 billion.
Bessent also called for an expansion of the Federal Reserve's repurchase agreement facility, established in 2020, which allows central banks holding U.S. Treasuries to borrow dollars. This move is seen as a strategic effort to support the U.S. bond market, as Japan, the largest holder of U.S. debt, might otherwise have been forced to sell Treasuries to support its currency, potentially driving up U.S. interest rates.
Some analysts, like Robin Brooks of the Brookings Institution, disagree with Bessent's assessment of the yen being undervalued, attributing its weakness to Japan's substantial public debt. Others, such as Ed Al-Hussainy of Columbia Threadneedle Investments, highlight the political considerations, including Japan's prime minister's approval ratings and its pledges to invest in the U.S., as factors influencing the timing of the intervention.
This marks the second time in a year that Bessent has engaged in significant currency market intervention. The last direct U.S. intervention to support the yen occurred in 1998 during the Asian financial crisis.