Bessent Says a ‘Disorderly Yen’ Could Ultimately Raise US Rates

(Bloomberg) -- Treasury Secretary Scott Bessent defended his move last month to support the yen, saying that any extreme volatility in the Japanese currency could feed through 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 recent 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, who posted the letter on X Friday, declined to spell out how much the US deployed in the late July intervention, while saying it involved "existing Exchange Stabilization Fund foreign-currency assets for yen." Earlier this month, he indicated that the Treasury had used euros. Also on Friday, Japan reported that it had spent a record $96.4 billion in the past month to support the yen.

Treasury watchers had connected Bessent's unusual move — the first US intervention to buy the yen since 1998 — with concerns about heading off any rise in Treasury yields. 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 surrendered some of the gains from the intervention, and on Friday fell below 160 per dollar for the first time since that day.