U.S. Treasury Explains Yen Purchase Intervention: "Instability Could Lead to Higher U.S. Interest Rates"

In a Letter to Senator, “Japan Is a Major Holder of U.S. Treasury Securities”

Scott Bessent, U.S. Secretary of the Treasury, explained that last month’s unusual intervention to purchase yen by the United States could lead to higher U.S. interest rates due to the sudden instability in the yen market.

Scott Bessent, U.S. Secretary of the Treasury Photo by AP Yonhap News

According to Bloomberg and other sources on August 28 (local time), Secretary Bessent made these remarks in a letter sent the previous day to Democratic Senator Elizabeth Warren. He stated, “Japan is a major holder of U.S. Treasury securities,” in response to Senator Warren’s inquiry requesting an explanation for the background behind the U.S. intervention to purchase yen, which was the first such action since 1998.

Last month, the United States intervened in the foreign exchange market together with Japan to prevent a sharp decline in the value of the yen. This marked the first time in 38 years that the U.S. intervened by buying yen in the foreign exchange market.

Secretary Bessent noted, “If the yen market becomes disorderly, it can trigger forced position liquidations,” adding, “This can destabilize global markets and, ultimately, increase borrowing costs for American households and businesses.” He did not disclose the amount of funds injected by the U.S. into the intervention, but explained that “the Exchange Stabilization Fund (ESF) exchanged existing foreign currency assets for yen.”

Secretary Bessent emphasized, “The United States did not provide credit to Japan,” adding, “Japan owes nothing to the U.S. Treasury, and therefore, there is no risk of Japan defaulting on a non-existent debt.” He also clarified that the Treasury complied with relevant laws, explaining that the statutes governing the ESF explicitly authorize the Secretary to conduct foreign exchange transactions with the approval of the President.

Meanwhile, the Japanese Ministry of Finance announced that the total scale of its yen-buying and dollar-selling foreign exchange interventions conducted last month and this month amounted to 15,399.3 billion yen (approximately 132.48 trillion won), marking the largest yen-buying intervention on record.

However, the yen’s exchange rate is returning to its pre-intervention level. The dollar-yen rate, which had neared 164 yen per dollar before the intervention, dropped to the 155-yen range immediately after, but on August 28 (local time) in New York’s foreign exchange market, it rose to 160.20 yen at one point, moving above the 160-yen level for the first time since the intervention.

This content was produced with the assistance of AI translation services.