US Treasury Secretary Scott Bessent stated that sharp, chaotic fluctuations in the yen’s exchange rate could ultimately raise interest rates in the United States.
Bessent defended his decision last month to support the yen, noting that excessive volatility in the Japanese currency could affect US interest rates. “Japan is a major holder of US Treasury bonds,” Bessent wrote in a letter dated August 27 in response to a recent request from Democratic Senator Elizabeth Warren about the yen operation.
According to him, “chaotic movements in the yen market could trigger forced unwinding of positions, which could destabilize global markets and ultimately increase the cost of borrowing for American families and businesses.”
Details of the intervention and Japan’s expenses
Bessent, who posted the letter on X on Friday, declined to disclose how much money the United States used during the late‑July intervention. He said the operation employed the “available currency assets of the Exchange Stabilization Fund for yen operations.” Earlier this month, he noted that the Treasury had used euros.
Also on Friday, Japan reported that it had spent a record $96.4 billion over the past month to support the yen.
Experts monitoring Treasury activity linked Bessent’s unusual step—the first US yen‑buying intervention since 1998—to concerns about a possible rise in Treasury‑bond yields. Japan is the largest foreign holder of US government securities.
Legal basis and financial obligations
Elizabeth Warren, the top Democrat on the Senate Banking Committee, demanded that Bessent justify the Treasury’s use of the Exchange Stabilization Fund (ESF).
Bessent said his department acted under the ESF law, which “directly authorizes the secretary, with the president’s approval, to conduct foreign‑currency operations to support orderly exchange relations.”
“Japan was not given a loan. Japan owes nothing to the Treasury. Therefore, there is no risk that Japan will be unable to repay a debt that does not exist,” Bessent added.
Meanwhile, the yen lost some of its gains after the intervention: on Friday its exchange rate fell below 160 yen per dollar for the first time since the operation was carried out.
Source: Bloomberg
