Japan’s comparatively slow tightening has kept its interest rates low relative to those in markets such as the United States, encouraging investors to finance global trades with inexpensive yen.
Bessent made his comments in a letter dated August 27 and posted on his X account the following day.
He was responding to Democratic Senator Elizabeth Warren’s demand for an explanation of Washington’s involvement in the joint intervention.
Bessent explained that the US Treasury had conducted its part of the operation by exchanging foreign-currency assets held in the Exchange Stabilization Fund (ESF) for yen.
The ESF is an emergency reserve managed by the Treasury to stabilise foreign-exchange and domestic financial markets.
The Treasury used the ESF last year to support Argentina’s peso market and provide a US$20 billion currency swap line intended to stabilise the currency.
“The same principle was at work in Argentina, where Treasury used the Exchange Stabilization Fund to stabilize Argentina in a moment of acute, short-term illiquidity and to prevent the problem from becoming a broader regional crisis,” Bessent wrote.
“The best-managed crisis is the one that never happens,” Bessent added, defending Washington’s decision to join Tokyo.
Earlier this month, he pledged that the United States would do “whatever it takes” to support Japan’s effort to stabilise the yen, adding that the currency’s substantial undervaluation could cause other economic problems or encourage competitive devaluations elsewhere.
Washington has also pointed to a Federal Reserve backstop for major central banks to demonstrate Japan’s continued capacity for large-scale intervention.
Introduced in 2020 to steady markets during the pandemic, the facility allows Japan to obtain dollar liquidity without selling US Treasuries outright.
Source: Reuters
