US Treasury intervened in yen market to prevent US interest rate hikes

US Treasury Secretary Scott Bessent has revealed the rationale behind the United States' rare intervention in the yen market last month, stating it was a strategic move to preemptively manage potential increases in US interest rates. In a letter to Senator Elizabeth Warren, Bessent explained that Japan's significant holdings of US Treasury bonds made the yen's instability a direct concern for American financial stability.

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Japan is a major holder of U.S. Treasury bonds.

Bessent elaborated that a disorderly yen market could lead to forced liquidations, creating broader global market instability. This instability, he warned, could ultimately raise borrowing costs for American families and businesses. The intervention, which involved the US purchasing yen, was the first such action taken by the US since 1998, underscoring the perceived severity of the situation.

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If the yen market becomes chaotic, it could trigger forced liquidations, destabilize global markets, and ultimately increase borrowing costs for U.S. households and businesses.

The Treasury Secretary acknowledged that the ultimate goal was to curb rising US Treasury yields. He noted that if Japan, a major holder of US debt, were to sell its Treasury bonds to buy yen, it could further drive up yields. While Bessent did not disclose the exact amount of currency deployed, he clarified that the intervention involved exchanging foreign assets already held by the Exchange Stabilization Fund (ESF) into yen, rather than providing a loan to Japan. This detail was emphasized to assure compliance with legal frameworks that grant the Treasury Secretary authority over foreign exchange transactions with presidential approval.

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The Exchange Stabilization Fund exchanged foreign currency assets it already held for yen.