Key facts
- U.S. commitment
- Will do 'whatever it takes' to support Japan's currency stabilization
- Intervention date
- Friday, with Japan's Ministry of Finance also intervening on Thursday
- Yen level
- Trading around 157 per dollar, recovered from near 164
- Weekly gain
- Almost four per cent, biggest weekly jump in two years
- FIMA facility
- COVID-era Fed backstop allowing Bank of Japan to borrow up to US$60 billion
- Bessent's note
- Reuters photo showed 'Buy Japanese yen (JPY) $5-10 bil.' on his to-do list
Background
Treasury Secretary Scott Bessent said on Tuesday that the Trump administration will do 'whatever it takes' to support Japan's effort to stabilize its currency. He made the remarks in an interview on CNBC, two days after confirming the Treasury had joined Japan's finance authorities in an intervention last week to prop up the yen.
Bessent said the yen's substantial undervaluation could trigger other economic problems or competitive devaluations of other currencies 'which is unhealthy.' Japan confirmed on Monday it had carried out yen-buying intervention on Friday with the U.S. Treasury department. Rather than buying yen and selling dollars, two market sources told Reuters the Treasury had instead bought yen for euros, confirming an earlier Financial Times report.
Current situation
Japan's Ministry of Finance also intervened in markets on Thursday, and in addition to Friday's action, there were further sharp moves on Monday that were potentially intervention-driven. The yen, trading at around 157 per dollar, has recovered from 40-year lows near 164. It strengthened almost four per cent last week, its biggest weekly jump in two years.
The U.S. Treasury chief did not discuss the mechanics of U.S. participation in Friday's joint intervention with Japan. He said that he was happy that the Japanese government wants to use a COVID-era Federal Reserve backstop for key central banks, the Foreign and International Monetary Authorities Repo Facility, which would allow the Bank of Japan to borrow up to US$60 billion to support the yen.
| Item | Value |
|---|---|
| Current yen per dollar | around 157 |
| 40-year low | near 164 |
| Weekly gain | almost four per cent |
| FIMA borrowing limit | US$60 billion |
| Bessent's to-do list amount | $5-10 bil. |
Impacts
Bessent said the FIMA facility was done in 2020, when the size of the bond market was much smaller, and suggested it would be reasonable for the Fed to consider up-sizing the facility. Its purpose, he said, was to 'protect the U.S. economy and keep any volatility offshore.'
Regarding U.S. sales of euros to buy yen, Bessent said he was in close contact with European partners including central banks. 'I assured them that it was just a reallocation of our reserves. Seems to me the euro is much closer to an equilibrium price,' he said. He declined to comment on where the euro should trade, but reiterated the substantial undervaluation of the yen and the policies of the Takaichi government to change that.
Future outlook
Scenario analysis: The possibilities below are not certain predictions.
If the Fed agrees to up-size the FIMA facility, the Bank of Japan could gain additional capacity to support the yen, potentially reducing the need for direct intervention. However, the scale and timing of any such move remain unclear.
The yen's recovery from its lows may continue if the Japanese government maintains its intervention policies and if the U.S. continues to support those efforts. Conversely, if the yen remains undervalued, competitive devaluations by other countries could emerge, which Bessent described as 'unhealthy.'
Bessent's lighthearted comment about his 'to do' list, which included buying Japanese yen worth $5-10 billion, suggests the U.S. may remain actively engaged in supporting the yen. Yet the exact future steps depend on market conditions and policy decisions that have not been disclosed.
Source: globalnews.ca
