Besent Defends US Intervention to Buy Yen: Only "Symbolic" Funds Invested; Yen Appreciation Benefits US Exports and Treasury Market

According to Zhihui Finance APP, U.S. Treasury Secretary Bessent said on Tuesday that the U.S. Treasury previously coordinated with Japan to buy yen, using only “symbolic” amounts of funds, and defended this rare foreign exchange market intervention. He emphasized that a stronger yen is in the interest of the United States; not only is it beneficial to U.S. exports, but it could also reduce Japan’s need to sell U.S. dollar assets—including a potential reduction in holdings of U.S. Treasuries—to intervene in the currency market.

Bessent stated at a hearing before the House Financial Services Committee on Tuesday: “A stronger yen is good for U.S. exports; a stronger yen also means the Japanese government doesn’t need to sell U.S. assets to finance foreign exchange intervention.”

On July 31, the U.S. Treasury teamed up with Japan to buy yen when the yen had already fallen to its lowest level against the U.S. dollar in about 40 years. Afterwards, the Japanese government injected a record amount of funds to intervene in the currency market, selling dollars and buying yen to prevent further devaluation, and these actions may have involved selling U.S. Treasuries.

Since Japan remains the largest overseas holder of U.S. Treasuries, the potential selling pressure on U.S. bonds resulting from Japan’s large-scale intervention in the currency market has become an important reason for U.S. concern regarding this issue.

Bessent: The U.S. Only Used “Symbolic” Funds Yet Successfully Delivered a Policy Signal

Bessent explained that the U.S. Treasury needed to invest only very limited funds to send a signal to the market indicating support for Japan’s exchange rate policy. He said during the hearing: “With only a symbolic amount, we were able to signal our support for Japan’s policy.”

According to market observers, the funds utilized by the U.S. Treasury to buy yen this time were significantly less than $1 billion. In contrast, Japan’s intervention was much larger, reaching a record $96.4 billion in yen purchases from late July to late August.

Bessent also revealed that, although profit was not the goal, the U.S. Treasury has already earned tens of millions of dollars from this yen transaction.

In terms of scale, the symbolic nature of the U.S. action far outweighed the actual capital involved. Compared to Japan’s nearly $100 billion intervention, the U.S. contributed less than $1 billion, yet its direct participation in buying yen has already sent a clear policy signal to the FX market.

A Stronger Yen Aligns With U.S. Interests, Reduces Pressure on Japan to Sell Treasuries to Intervene in the Currency Market

Bessent further elaborated on the logic behind U.S. participation in yen intervention. Firstly, yen appreciation means USD/JPY declines, improving the price competitiveness of U.S. goods versus Japanese goods, so a stronger yen benefits U.S. exports. Secondly, when the yen depreciates sharply, Japan often needs to sell U.S. dollar assets and buy yen to intervene. Since Japan holds a large amount of U.S. Treasuries, if intervention continues to expand, the market could worry about Japan selling some U.S. bonds to raise U.S. dollar funds.

As the largest foreign holder of U.S. government bonds, changes in Japan’s asset allocation could impact the U.S. Treasury market. Therefore, for the U.S., preventing a disorderly decline of the yen touches not just on exchange rates and trade, but is also related to the stability of the U.S. Treasury market and America’s own financing costs.

Last month, Bessent, in response to a question from Democratic Senator Warren on this intervention, had stated that disorderly volatility in the yen market could force investors to close positions, potentially roiling global financial markets and ultimately pushing up borrowing costs for American households and businesses.

Bessent Continues Urging Bank of Japan to Hike Rates as BOJ Meets for Key Policy Decision This Week

Besides direct intervention in the currency market, Bessent has also repeatedly hinted in recent weeks that he hopes the Bank of Japan will support the yen more sustainably through rate hikes. His previous remarks suggested that his assessment of Japanese monetary policy direction is also one of the considerations behind the U.S. Treasury’s decision to participate in yen intervention.

The Bank of Japan will hold a monetary policy meeting this week. After the yen recently touched multi-decade lows and the United States and Japan jointly intervened in the FX market, whether the Bank of Japan will further tighten monetary policy has become a global market focus.

If the BOJ hikes rates further, the long-standing interest rate differential between Japan and the U.S. could narrow, thus reducing the attractiveness of the yen carry trade—borrowing cheap yen to buy higher-yielding U.S. assets—and fundamentally support the yen.

“Now I’m the House!” Bessent Warns Traders Not to Short Yen Lightly

Bessent even directly warned traders betting on further yen depreciation. Last week, at an event at Southern Methodist University in Texas, he said: “Now I’m the house. So, when we intervene on the yen, I have a pretty deep insight into what the Japanese side, the Bank of Japan, and policymakers in Japan will do.” He then added: “If you want, you can bet against me.”

These remarks indicate that the U.S. Treasury’s participation in yen intervention this time may not be just a one-off market operation, but is closely linked to Bessent’s assessment of Japan’s subsequent monetary policy.

With the BOJ’s policy meeting approaching this week, the market’s focus has shifted from the Japanese government’s direct yen purchases to whether the Bank of Japan will further support the exchange rate by hiking rates.