Bessent Seeks Fed Support for Yen Defense Amid Dollar Surge

US Treasury Secretary Scott Bessent is pushing for the Federal Reserve to expand its support for Japan's defense of the yen, seeking to bring the central bank more directly into efforts to stabilize the Japanese currency.

The proposal could have significant implications for the US Treasury market, which is valued at around $29 trillion. Bessent argues that maintaining stability in the yen is crucial given Japan's importance as one of the world's largest economies and its role in global trade, savings, and investment flows.

Bessent recently announced that the United States had participated in foreign exchange intervention to support the yen, a rare move that followed the dollar climbing to around ¥164 against the yen last week. The coordinated intervention aimed to stabilize the currency and avoid creating additional pressure on the US Treasury market by selling US dollars.

The current daily borrowing limit under the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility stands at $60 billion per central bank, but Bessent has called for expanding this facility to allow Japan to defend its currency without selling its massive holdings of US Treasury securities. The facility helps reduce volatility in the Treasury market and limits upward pressure on yields.