Treasury Secretary Scott Bessent has publicly defended the U.S. decision to intervene in currency markets in late July by purchasing yen, arguing that extreme volatility in the Japanese currency poses a threat to U.S. borrowing costs.
In a letter dated Aug. 27 responding to Democratic Senator Elizabeth Warren's inquiry about the operation, Bessent wrote that "Japan is a major holder of US Treasuries." He added that "Disorderly yen markets can trigger forced unwinds, which could destabilize global markets and ultimately raise borrowing costs for American families and businesses."
Bessent posted the letter on X on Friday. He did not disclose the precise amount the United States deployed in the transaction, saying only that it involved "existing Exchange Stabilization Fund foreign-currency assets for yen." Earlier in August he had indicated that the Treasury had used euros as part of its actions.
Japan itself reported that it had spent a record $96.4 billion in the past month to support the yen. The U.S. operation was the first time Washington intervened to buy the yen since 1998. The United States also noted Japan's status as the largest foreign holder of U.S. government securities.
Senator Warren, who serves as the top Democrat on the Senate Banking Committee, had requested the analysis underpinning the use of the Treasury's Exchange Stabilization Fund. In his response, Bessent said the Treasury department had acted within the statute governing the ESF, which he said "expressly authorizes the secretary, with presidential approval, to deal in foreign exchanges in support of orderly exchange agreements."
Addressing concerns about financial assistance, Bessent wrote: "No credit was extended to Japan. Japan owes Treasury nothing. There is therefore no risk that Japan will fail to repay a debt that does not exist."
Market data cited alongside the exchange action showed moves in key rates and currency pairs, including EUR/USD at -0.61%, USD/JPY at +0.5% and the U.S. 10-year yield at +1.22%.
The yen has since reversed some of the gains generated by the intervention. On Friday it traded below 160 per dollar, a level not seen since late July, indicating that the currency has retraced part of its post-intervention appreciation.
Summary of events
- Treasury Secretary Scott Bessent defended a late-July intervention to buy yen, citing risks to U.S. borrowing costs from yen volatility.
- Bessent declined to specify the amount used, saying the operation drew on existing ESF foreign-currency assets for yen; earlier comments indicated euros were used.
- Japan reported record intervention spending of $96.4 billion over the past month; the U.S. purchase was its first yen-buying intervention since 1998.
Market context and immediate effects
The Treasury's explanation emphasized the link between disorderly currency moves and potential forced unwinds that could ripple through global markets, with implications for U.S. Treasury holders and borrowing costs for households and businesses. The yen subsequently gave back some intervention-driven gains and slipped below 160 per dollar on Friday.