US Treasury Secretary Scott Bessent confirmed a coordinated intervention with Japan to strengthen the yen, which had fallen to a 40-year low. This intervention involved the US selling euros from its reserves to purchase yen, a move that surprised markets as such interventions typically involve selling dollars. Bessent stated the goal was to stabilize the yen and the broader Asian market, fearing that continued yen weakness could fuel inflation in Japan, pressure other Asian currencies like the South Korean won and Chinese yuan, and destabilize global markets.
The intervention came after the yen reached 163.73 against the dollar and subsequently strengthened to 157.57. Bessent emphasized that while the intervention could curb short-term volatility, long-term stability would require Japan to implement broader policy changes, though he refrained from directly advising on interest rate hikes by the Bank of Japan. He noted the US concern over a weakening yen's impact on the US trade deficit, making Japanese exports cheaper and US exports more expensive, and the potential for Japan to sell US Treasurys to finance a currency rescue, which could raise US interest rates.
Economists have expressed mixed reactions. Joseph Foudy of NYU's Stern School of Business believes the intervention injected caution into speculators but might not be a lasting solution, suggesting more interventions could be necessary. Robin Brooks of the Brookings Institution warned that selling euros instead of dollars to buy yen could undermine confidence in the yen, as it might signal a US attempt to prevent Japan from selling its US Treasury holdings. Brooks questioned why the US didn't fund yen buying directly with dollars, suggesting the euro sale could weaken the impact of US participation.
