Bessent defends yen support, cites US borrowing cost risks

Investing.com -- Treasury Secretary Scott Bessent defended the decision to support the yen in late July, stating that extreme volatility in the Japanese currency could lead to higher US interest rates.

"Japan is a major holder of US Treasuries," Bessent said in an Aug. 27 letter responding to Democratic Senator Elizabeth Warren's inquiry about the yen operation. "Disorderly yen markets can trigger forced unwinds, which could destabilize global markets and ultimately raise borrowing costs for American families and businesses."

Bessent posted the letter on X on Friday. He declined to specify how much the US deployed in the intervention, stating it involved "existing Exchange Stabilization Fund foreign-currency assets for yen." Earlier this month, he indicated that the Treasury had used euros. Japan reported Friday that it had spent a record $96.4 billion in the past month to support the yen.

The operation marked the first US intervention to buy the yen since 1998. Japan is the largest foreign holder of US government securities.

Warren, the top Democrat on the Senate Banking Committee, had pressed Bessent to provide the analysis behind using the Treasury's ESF.

Bessent said his department had followed the ESF's statute, which "expressly authorizes the secretary, with presidential approval, to deal in foreign exchanges in support of orderly exchange agreements."

"No credit was extended to Japan," Bessent said. "Japan owes Treasury nothing. There is therefore no risk that Japan will fail to repay a debt that does not exist."

The yen has given back some of the gains from the intervention. On Friday, it fell below 160 per dollar for the first time since late July.

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