U.S. Treasury Secretary Scott Bessent warned in a letter that excessive volatility in the Japanese yen could trigger forced position unwinds, destabilizing global financial markets and increasing borrowing costs for American households and businesses.
The warning, delivered in a response to Democratic Senator Elizabeth Warren, followed a rare joint currency intervention by the U.S. and Japan in late July. The operation involved exchanging foreign-currency assets held in the Treasury’s Exchange Stabilization Fund (ESF) for yen to counter a sharp depreciation in both the yen and Japanese government bonds.
The yen briefly dipped below 160 per dollar on Friday, a level closely monitored as a potential trigger for further central bank intervention. The currency had earlier rallied from a 40-year low of 164 per dollar following the joint operation, reaching 155.20 before easing back toward the 160 mark.
Bessent’s letter emphasized the need to prevent disorderly market conditions, citing the Treasury’s previous use of the ESF in 2023 to stabilize Argentina’s peso amid acute illiquidity. He stated that proactive measures were taken to avert broader regional financial instability.
The renewed pressure on the yen coincided with remarks from Federal Reserve Chair Kevin Warsh, which reinforced expectations of potential near-term U.S. interest rate hikes. This contrasted with market expectations of possible near-term rate hikes by the Bank of Japan, contributing to the currency’s renewed weakness.
Bessent’s response underscored the Treasury’s commitment to managing currency volatility through coordinated interventions when necessary, while warning of the broader risks posed by disorderly market conditions.
