Key facts
- Treasury Secretary Scott Bessent has led a coordinated currency intervention with Japan to support the yen.
- The U.S. reportedly used euros to purchase yen, aiming to bolster its value without weakening the dollar.
- The intervention is intended to prevent higher U.S. borrowing costs by discouraging Japan from selling its U.S. debt holdings.
- Bessent previously made a significant profit betting against the yen during the Asian financial crisis.
- The Treasury Department has officially stated that the yen is undervalued and its volatility is undesirable.
U.S. Treasury Secretary Scott Bessent, drawing on his background as a currency trader, has spearheaded a joint intervention with Japan to stabilize the Japanese yen. This move aims to prevent further weakening of the yen, which could lead to higher U.S. borrowing costs if Japan were to sell its substantial holdings of U.S. debt. The intervention also seeks to support a key U.S. ally in the region.
Bessent, who previously made a significant profit betting against the yen, stated that the U.S. is proud to stand with Japan in implementing policies to stabilize the currency. The Treasury Department has officially declared the yen to be substantially undervalued and its trading volatility undesirable. Analysts suggest the U.S. utilized its euro holdings for the intervention, thereby bolstering the yen without negatively impacting the dollar's value.
While Bessent expressed confidence in Japan's economic policies and indicated a readiness for further intervention if necessary, some economists like Robin Brooks of the Brookings Institution disagree with the assessment of the yen being undervalued. Brooks argues that the yen's weakness stems from Japan's high public debt, and propping up the currency is a temporary fix that does not address underlying economic issues.
The decision to intervene is also seen through a political lens, as a weaker yen has impacted the cost of living in Japan and potentially affected Prime Minister Sanae Takaichi's approval ratings. The U.S. administration's high sensitivity to the Treasury market is also a noted factor, as Japan is the largest holder of U.S. debt. The Federal Reserve's repurchase agreement facility, established in 2020, was mentioned as a tool that could be expanded to facilitate such interventions.