Forecast Trend Report by Period
Treasury Secretary Scott Bessent said the US decision to intervene in currency markets with Japan last month was meant to keep a sharp drop in the yen from feeding into higher US interest rates. Officials were concerned that yen weakness could spur Japanese investors to sell US Treasuries, increasing borrowing costs for American households and businesses.
Bloomberg reported on August 28 that Bessent posted on X a letter sent to Senator Elizabeth Warren, a Massachusetts Democrat. Warren’s office received the letter on August 27.
Warren had asked the Treasury Department to disclose the legal basis for using the Exchange Stabilization Fund, or ESF, to buy yen, as well as the size of the intervention and any risks to taxpayers. The ESF is a Treasury-managed fund used to stabilize exchange rates and foreign-exchange markets.
“Japan is a major holder of US Treasuries, a key trading partner and a treaty ally,” Bessent wrote. “Disorderly moves in the yen market could trigger forced liquidation of investment positions and destabilize global financial markets.”
Such turmoil could ultimately push up the interest rates paid by US households and businesses. The concern was that a steep drop in the yen could lead Japanese financial firms and investors to sell US Treasuries.
If Japanese investors sold Treasuries to raise liquidity, bond prices would fall and yields would rise. That would also put upward pressure on mortgage rates, corporate bond yields and other funding costs across the US economy.
The US and Japan jointly intervened in foreign-exchange markets in late July to stem the yen’s decline. It marked the first time since 1998 that the US government had directly bought yen.
Bessent said the yen purchases did not use a separate government budget or involve loans to Japan. “The Treasury exchanged foreign-currency assets held in the ESF into yen,” he wrote. “There was no new appropriation from Congress and no credit was extended to Japan.”
“Japan owes nothing to the US Treasury,” he added. “There is no risk that Japan could fail to repay a debt that does not exist.” He did not disclose the amount used in the intervention.
Bessent cited Section 5302 of US law as the legal basis for the operation. The provision allows the Treasury secretary, with the president’s approval, to conduct foreign-exchange transactions to maintain a stable exchange-rate system. He said last month’s yen purchases were carried out under that authority.
