Fed May Get Pulled into Bessent's Effort to Support Japan's Yen

The Federal Reserve may be involved in efforts to support Japan's yen, following an intervention by US Treasury Secretary Scott Bessent. Bessent wants the Fed to expand a lending facility that would enable Japan to back its currency without affecting the sensitive US Treasury market.

The request comes as new Fed Chairman Kevin Warsh is seeking to rewrite the relationship between the Treasury and the Fed, potentially leading to major policy changes. However, it's unclear how much support Warsh has within the Fed for these efforts.

Treasury Secretary Bessent intervened in foreign exchange markets to support the Japanese yen on Friday, stating that the US action 'countered disorderly yen movements.' The intervention included selling euros from the Exchange Stabilization Fund to fund yen purchases. The yen retreated 3.5% after the intervention.

Bessent also wants Japan to make use of a Fed borrowing facility called the FIMA Repo Facility, which allows foreign central banks to lend their Treasuries for short periods rather than selling them. This would help stabilize the global financial system and avoid rising Treasury yields.