Bessent Ready for Joint Yen Intervention, Urges Bigger Fed Backstop

U.S. Treasury Secretary Scott Bessent declared on Sunday his willingness to engage in further coordinated foreign exchange interventions with Japan, should disorderly movements in the yen necessitate it. He also advocated for an expansion of the Federal Reserve's backstop facility for foreign central banks.

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The FIMA Repo Facility is an important backstop. We should encourage it to be upsized in the coming months.

Bessent indicated that the Fed's FIMA Repo Facility was utilized in the coordinated action on Friday, an intervention confirmed by Japan's finance ministry and President Donald Trump. "The FIMA Repo Facility is an important backstop. We should encourage it to be upsized in the coming months," Bessent stated via a social media post.

The FIMA Repo Facility, established by the Fed during the COVID-19 pandemic, enables countries holding Treasury securities at the New York Fed to access up to $60 billion in U.S. dollar loans for short terms. The facility is designed for times of market stress, offering loans at a rate typically above the open-market repo rate.

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We strongly support Japan's decisive market and monetary steps to correct the substantial undervaluation of the yen.

Increasing the facility's capacity would add to the responsibilities of new Fed Chairman Kevin Warsh. Japan holds approximately $1.14 trillion in Treasuries, making it the largest foreign holder. Utilizing the FIMA facility could allow Japan to secure funds for yen purchases without liquidating its Treasury holdings, which could otherwise impact bond yields. As of late May, foreign entities held nearly $3 trillion on deposit at the New York Fed, with a significant portion in Treasuries.

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We will not hesitate to participate in further joint intervention.