Key facts
- U.S. Treasury Secretary Scott Bessent is leading efforts to stabilize the Japanese yen.
- The intervention aims to prevent higher U.S. borrowing costs and support Japan amid competition with China.
- The U.S. reportedly used euro holdings to purchase yen.
- The yen had fallen to a 40-year low against the dollar.
- Bessent called for expanding the Federal Reserve's repurchase agreement facility.
U.S. Treasury Secretary Scott Bessent is employing significant economic might to support the Japanese yen, a move reminiscent of his past as a currency trader. This intervention, a coordinated effort between the United States and Japan, aims to stabilize the rapidly weakening yen, which had fallen to a 40-year low against the dollar. The move is intended to shield the U.S. economy from global market volatility, prevent higher borrowing costs for Washington, and support Japan as a key ally amidst intensifying competition with China.
Bessent's notepad reportedly indicated planned yen purchases between $5 billion and $10 billion. The U.S. Treasury Department has previously stated that the yen is substantially undervalued and that excessive volatility is undesirable. Analysts suggest the U.S. utilized its euro holdings for the intervention, thereby bolstering the yen without undermining confidence in the dollar. Bessent has also advocated for expanding the Federal Reserve's repurchase agreement facility, established in 2020, which allows central banks holding U.S. Treasuries to borrow dollars.
The decision to directly support the yen appears strategically linked to the U.S. bond market. With U.S. borrowing rates rising, Japan, the largest holder of U.S. debt, might have been compelled to sell Treasuries to defend its currency. Such a sale could have further elevated U.S. interest rates, a prospect the Trump administration is keen to avoid, especially with midterm elections approaching. Experts like Robin Brooks of the Brookings Institution, however, question the premise of the yen being undervalued, attributing its weakness to Japan's substantial public debt rather than speculative pressures.
Political considerations also appear to be a factor. The timing of the intervention coincides with slumping approval ratings for Japanese Prime Minister Sanae Takaichi and follows Japan's pledges to invest heavily in U.S. manufacturing. The last time the U.S. directly intervened to support the yen was in 1998 during the Asian financial crisis.