Bessent defends U.S. intervention to buy yen: only a "symbolic" amount committed; a stronger yen is good for U.S. exports and the U.S. Treasury market.

U.S. Treasury Secretary Bessent said on Tuesday that the U.S. Treasury had used only a "symbolic" amount of funds when it previously took coordinated action with Japan to buy yen, and he defended the rare foreign exchange market intervention. He stressed that a stronger yen serves U.S. interests, not only benefiting U.S. exports but also reducing the need for Japan to sell dollar assets, including potentially reducing its holdings of U.S. Treasuries, in order to fund currency intervention. Bessent said on Tuesday at a hearing before the U.S. House Financial Services Committee: "A stronger yen is good for U.S. exports; a stronger yen also means the Japanese government does not have to sell U.S. assets to finance foreign exchange intervention." The U.S. Treasury joined with Japan on July 31 to buy yen. At that time, the yen had already fallen to its lowest level against the dollar in about 40 years. Since then, the Japanese government has spent record funds to intervene in the foreign exchange market, selling dollars and buying yen to prevent further depreciation of the currency, and the related operations may involve selling U.S. Treasuries. Because Japan remains the largest overseas holder of U.S. Treasuries, the potential selling pressure on U.S. Treasuries brought about by Japan's large-scale currency intervention has also become an important reason for U.S. attention to this issue. Bessent: The U.S. invested only a "symbolic" amount but successfully sent a policy signal Bessent said the U.S. Treasury needed to invest only a very limited amount of funds to show the market its support for Japan's exchange rate policy. Bessent said at the hearing: "With only a symbolic amount, we were able to send a signal of support for Japan's policy." According to estimates by market observers, the funds used by the U.S. Treasury to buy yen this time were clearly less than $1 billion. By comparison, Japan's intervention was much larger. From the end of July to the end of August, Japan used a record $96.4 billion to buy yen. Bessent also disclosed that although profit was not the goal of the operation, the U.S. Treasury has already earned tens of millions of dollars from this yen transaction. In terms of scale, the symbolic significance of the U.S. action was clearly greater than the actual funds invested. Compared with Japan's nearly $100 billion intervention, the United States invested less than $1 billion, but the Treasury's direct participation in buying yen itself already sent a clear policy signal to the foreign exchange market. A stronger yen serves U.S. interests and can reduce pressure on Japan to sell U.S. Treasuries to intervene in the currency market Bessent further explained the logic behind U.S. participation in the yen intervention. First, yen appreciation means the dollar falls against the yen, and the price competitiveness of U.S. goods relative to Japanese goods is expected to improve, so a stronger yen is good for U.S. exports. Second, when the yen depreciates sharply, Japan usually needs to sell dollar assets and buy yen to intervene in the exchange rate. Because Japan holds a massive amount of U.S. Treasuries, if the scale of intervention continues to expand, the market may worry that Japan will sell some U.S. Treasuries to raise dollar funds. As the largest foreign holder of U.S. government bonds, changes in Japan's asset allocation may affect the U.S. Treasury market. Therefore, for the United States, preventing disorderly declines in the yen involves not only exchange rates and trade, but also the stability of the U.S. Treasury market and the United States' own financing costs. In a reply last month to Democratic Senator Warren's questions about the intervention, Bessent said that disorderly fluctuations in the yen market could trigger forced liquidation by investors, thereby hitting global financial markets and ultimately raising borrowing costs for U.S. households and businesses. Bessent continues to urge the Bank of Japan to raise rates; the BOJ faces a key meeting this week In addition to directly participating in currency market intervention, Bessent has also repeatedly hinted in recent weeks that he hopes the Bank of Japan will provide more sustained support for the yen by raising interest rates. His previous remarks showed that his judgment on the direction of Japan's monetary policy was also one of the considerations behind the U.S. Treasury's decision to participate in yen intervention. The Bank of Japan will hold a monetary policy meeting this week. After the yen previously fell to a decades-low and the United States and Japan jointly intervened in the currency market, whether the Bank of Japan will further tighten monetary policy has become a focus of global markets. If the Bank of Japan raises interest rates further, the long-standing huge interest rate differential between Japan and the United States is expected to narrow, thereby reducing the appeal of carry trades in which investors borrow low-yielding yen and buy higher-yielding dollar assets, and providing fundamental support for the yen. "I am the house now"! Bessent warns traders not to short the yen lightly Bessent had even directly warned traders betting on continued yen depreciation. He said last week at an event at Southern Methodist University in Texas: "I am the house now. So when we intervene in the yen, I have a fairly deep understanding of what the Japanese side, the Bank of Japan, will do, and what Japanese policymakers will do." He then added: "If you want, you can bet against me." These remarks show that the U.S. Treasury's participation in the yen intervention this time may not have been a simple one-off market operation, but was closely related to Bessent's judgment on Japan's subsequent monetary policy. As the Bank of Japan holds its policy meeting this week, the market focus is gradually shifting from the Japanese government's direct buying of yen to whether the Bank of Japan will further support the exchange rate through interest rate hikes.