US Treasury Secretary Bessent supports yen intervention as Japan and US seek to stabilize currency

US and Japan coordinate to support yen amid depreciation concerns

The US Treasury Secretary, Scott Bessent, has joined Japan in a coordinated effort to stabilize the Japanese yen, which has been depreciating sharply against the US dollar. The intervention, which includes direct purchases of yen and verbal support from officials, marks one of the most significant market moves in recent years. Bessent, known for his expertise in global markets, has publicly stated that the yen is “very undervalued” and that “excess volatility” is not healthy. This stance aligns with Japan’s efforts to counter the yen’s decline, which has raised concerns about inflation and trade imbalances.

Bessent’s influence grows as yen faces pressure from global factors

The yen has been under pressure from a range of factors, including rising oil prices, Japan’s persistent budget deficits, and a widening interest rate gap with the US and other major economies. The currency hit its weakest levels since 1986 on July 29, prompting alarm in Tokyo. Bessent’s public comments and direct intervention calls have added weight to the effort to stabilize the yen. His influence is acknowledged by Japanese officials, including Finance Minister Satsuki Katayama, who described him as “one of the most knowledgeable experts in markets.”

During a cabinet meeting in Camp David, Bessent was seen with a notepad listing “Buy Japanese Yen (JPY) $5-10 bil” as a key action item. This signal of support has been interpreted as a clear indication of the US administration’s willingness to engage in coordinated market interventions. The yen has since rebounded, with the dollar-yen exchange rate reaching 157.40 on the close of New York trading on July 31, the strongest level since early May. This recovery has been fueled by direct purchases of yen by Japanese authorities and the US Treasury, as well as verbal support from officials.

The intervention has been described as one of the most notable rebounds in the yen since its long-term decline began. Japanese authorities and the Bank of Japan have been actively buying yen and selling US dollars during New York trading, with reports indicating that the Japanese government spent around 8.45 trillion yen (US$52.8 billion) on a single day. This would likely be the largest single-day intervention by Tokyo in history. However, the effectiveness of such measures remains uncertain, as past interventions have often seen gains fade quickly.

Despite the coordinated effort, the interest rate gap between the US and Japan remains a key challenge. The BOJ has voted to keep interest rates unchanged at 1 per cent, well below the US rate of 3.75 per cent. BOJ Governor Kazuo Ueda has offered little fresh support for the yen, though he has opened the door to the possibility of rate hikes in the future. Bessent has expressed hope for a meeting with Ueda at the G20 in Asheville, North Carolina, in August, signaling continued engagement between the two central banks.

The intervention has also drawn attention from financial analysts, who note that without support from rate differentials, the impact of FX interventions is likely to be short-lived. Evercore ISI strategists have warned that the BOJ has so far refused to take a more active role in supporting the yen, despite the growing pressure on the currency. As the yen continues to fluctuate, the coordinated efforts of Japan and the US will be closely watched for their long-term effectiveness in stabilizing the currency.