U.S. Treasury Secretary Scott Bessent warned that erratic movements in the Japanese yen could trigger forced liquidations of positions, potentially destabilizing global markets and raising borrowing costs for U.S. households and businesses.
In a letter dated August 27 and published on August 28, Bessent addressed a demand from Senator Elizabeth Warren regarding last month’s joint currency intervention by Washington and Tokyo. The U.S. Treasury executed the move by trading foreign currency assets from its Exchange Stabilization Fund (ESF) to purchase yen, which had weakened to near 164 per dollar—a 40-year low.
The intervention temporarily strengthened the yen to 155.20 per dollar, but the currency has since weakened again, briefly dipping below 160 per dollar on Friday. Bessent emphasized that disorderly fluctuations around this level could prompt market disruptions, echoing concerns over the yen’s volatility as a systemic risk.
The U.S. Treasury’s ESF, an emergency reserve for stabilizing domestic and foreign exchange markets, was also deployed last year to support Argentina’s peso amid short-term illiquidity, preventing a broader regional crisis. Bessent noted the same principle applies to managing currency instability, stating, “The best-managed crisis is the one that never happens.”
The Treasury’s intervention mechanism relies on the ESF’s capacity to act swiftly in currency markets, though its use remains selective and tied to broader financial stability objectives.
