Key facts
- Disorderly yen movements risk destabilizing global markets and raising borrowing costs, according to U.S. Treasury Secretary Scott Bessent.
- Bessent defended a joint currency intervention with Japan conducted last month.
- The intervention aimed to prevent a selloff in the yen and Japanese government bonds from impacting global markets.
- The yen has weakened back towards the 160 per dollar level.
- The Treasury utilized its Exchange Stabilization Fund for the intervention.
U.S. Treasury Secretary Scott Bessent warned that significant fluctuations in the yen could destabilize global markets and increase borrowing costs for American consumers and businesses. In a letter dated August 27, Bessent explained that the Treasury intervened alongside Tokyo last month to prevent a sharp decline in the yen from creating broader financial instability.
Bessent stated that the intervention involved exchanging foreign-currency assets from the Exchange Stabilization Fund (ESF) for yen. He drew a parallel to the Treasury's use of the ESF to stabilize Argentina's peso market in a previous instance of acute, short-term illiquidity. The goal, he emphasized, is to prevent crises from occurring.
The comments come as the yen has resumed its weakening trend against the dollar, trading near the 160-per-dollar level. This threshold is closely watched as it may prompt further intervention. The yen had briefly recovered after the July 31 joint intervention, but recent remarks from Federal Reserve Chair Kevin Warsh have revived expectations of a near-term U.S. rate hike, putting renewed pressure on the Japanese currency.