Bessent's Folly: Intervening in Financial Markets is a Fool's Game

US Treasury Secretary Scott Bessent has been intervening in financial markets, but his efforts may be futile. He is targeting the foreign-exchange market and the US Treasury market, which are among the largest and most liquid financial markets in the world.

Bessent's goal is to strengthen the Japanese yen and lower long-term US interest rates, but his methods are unorthodox. He has partnered with Japan's finance ministry to intervene in the foreign-exchange market, spending an estimated $5-10 billion on July 31. In addition, he announced a plan to increase buybacks of long-dated US Treasuries, which could amount to about $32 billion per quarter.

The scale of Bessent's interventions is small compared to the size of these markets. The combined yen intervention represents only 0.6% of daily foreign-exchange turnover, and the support measures for long-dated bonds are equivalent to just 0.1% of the market per quarter.