U.S. Treasury Secretary Bessent defended the yen-buying intervention in July, saying disorderly moves in the yen could potentially increase the risk of higher U.S. interest rates. His response to the letter, the use of ESF assets and the scale of the monthly intervention have come back into focus.
In response to an inquiry from Democratic Senator Warren, Bessent noted that Japan is a major holder of U.S. Treasuries and said disorderly moves in the yen could destabilize global markets and potentially increase borrowing costs for U.S. households and businesses.
In a letter posted on social media on 28 August, he explained that yen was purchased using existing foreign-currency assets held by the Exchange Stabilization Fund (ESF). The Treasury had suggested earlier this month that euros may have been used.
Japan’s Ministry of Finance announced that intervention from 30 July to 26 August amounted to ¥15.3993 trillion, the largest ever on a monthly basis.
Participants in the U.S. Treasury market believe the unusual yen-buying intervention by the United States, the first since 1998, was intended to curb the rise in U.S. Treasury yields.
The yen gave up some of its post-intervention gains and rose above ¥160 to the dollar on 28 August. Bessent explained that the operation was not a loan to Japan and that Japan had no obligation to repay the U.S. Treasury.