Overview
Treasury Secretary Scott Bessent issued a letter on 27 August defending the U.S. decision to intervene in the Japanese yen market in late July. He warned that extreme volatility in the yen could trigger disorderly market conditions, potentially forcing unwinds that would destabilise global markets and raise borrowing costs for American families and businesses, thereby increasing U.S. interest rates.
Response to Senate Inquiry
The letter was a response to an inquiry from Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, who asked for the analysis behind the use of the Treasury’s Exchange Stabilization Fund (ESF). Bessent stated that the Treasury acted under the ESF statute, which expressly authorises the Secretary, with presidential approval, to deal in foreign exchanges to support orderly exchange agreements. He emphasized that no credit was extended to Japan and that “Japan owes Treasury nothing,” eliminating any risk of a repayment default.
Details of the Intervention
Bessent declined to disclose the exact amount deployed, noting only that the operation used “existing Exchange Stabilization Fund foreign‑currency assets for yen.” Earlier in the month, he indicated that the Treasury had employed euros for the intervention. The action represents the first U.S. yen‑buying intervention since 1998. Japan, the world’s largest foreign holder of U.S. government securities, reported having spent a record $96.4 billion in the past month to support its currency.
Market Impact
Following the intervention, the yen relinquished some of its gains and fell below 160 yen per dollar for the first time since late July, signalling that the market impact of the support was partially reversed.
Significance
The Treasury’s stance underscores the interconnectedness of currency stability and U.S. borrowing costs, highlighting the strategic importance of the yen to U.S. fiscal health and global financial stability.