Bessent's Yen Support Pledge Faces Skepticism Over Limited US Firepower

U.S. Treasury Secretary Scott Bessent's pledge to support Japan's yen has raised questions about the limits of Washington's intervention capacity. The Exchange Stabilization Fund (ESF), which is used for currency-market operations, is less than $220 billion. In contrast, Japan spent an estimated $53 billion in a single day on July 30 to prop up its currency.

Bessent said he would take 'whatever is necessary' to help the U.S. economy and global financial stability, but traders are skeptical about how much capacity the Treasury actually has to intervene. The dollar-yen exchange rate briefly fell into the 155 range after a joint intervention on July 31, but it quickly recovered.

Nathan Tuft, senior portfolio manager at Manulife Investment Management, said joint intervention with Japan could influence market sentiment, but would struggle to change the underlying direction of the exchange rate. The Federal Reserve can issue dollars and has the ability to intervene on an effectively unlimited scale, but in last month's joint intervention, it served only as the executing agent, buying yen on behalf of the Treasury.

Goldman Sachs said the muted market response to the latest joint intervention reflected the fact that the root causes of yen weakness remain in place. Without a change in the global backdrop or a policy shift, pressure on the yen is likely to reemerge over time.