US Treasury Chief Defends Yen Intervention, Warns of Global Fallout

US Treasury Secretary Scott Bessent has defended Washington's rare joint currency intervention with Tokyo, warning that disorderly yen movements could trigger "forced unwinds" of positions and destabilize global markets.

In a letter dated August 27 and posted on his X account the following day, Bessent responded to Democratic Senator Elizabeth Warren's request for an explanation of the intervention. He argued that unchecked yen declines could ultimately raise borrowing costs for American households and businesses.

The comments came as the yen resumed weakening against the dollar, despite expectations that the Bank of Japan might raise interest rates soon. The currency briefly slipped below the 160-per-dollar level on Friday, a threshold widely seen as increasing the likelihood of further intervention.

Japan and the United States conducted a joint yen-buying intervention on July 31, aiming to prevent a selloff in the yen and Japanese government bonds from spilling over into global markets. While the yen recovered from a 40-year low near 164 per dollar, it has since weakened back towards 160 after surging to 155.20 shortly after the intervention.

Bessent explained that the Treasury conducted the intervention by exchanging foreign-currency assets held in its Exchange Stabilization Fund (ESF) for yen. He drew a parallel with Argentina, where the Treasury used the ESF to stabilize the country during a period of acute short-term illiquidity and prevent a broader regional crisis.

"The best-managed crisis is the one that never happens," Bessent said, defending the decision to join Tokyo's efforts. The ESF is an emergency reserve managed by the Treasury to stabilize foreign-exchange and domestic financial markets. Last year, the Treasury used the fund to support Argentina's peso market and provide a $20 billion currency swap line.