US Treasury Intervenes to Support Weakening Yen Amid Dollar Hedge Pressure

The US Treasury intervened to support the yen, which has weakened sharply since 2022 as US interest rates climbed while Japan's remained low. The yen neared its lowest level against the dollar since 1986, at 164 per dollar.

Treasury Secretary Scott Bessent said Sunday that the US had intervened to support the yen, an unusual step even though Japan often acts to stabilize its currency. The last comparable US participation came in 2011 after Japan's earthquake and tsunami.

The Treasury reportedly sold euros from its Exchange Stabilization Fund to buy yen, helping the yen rebound to just under 157 by Monday. This move may have also aimed to protect demand for Treasurys by supporting the yen-funded carry trade, which is under strain due to Trump's tariffs and other policies pushing investors to hedge dollar exposure.

The Fed's FIMA repo facility was used in this episode, allowing Japan to temporarily exchange Treasurys for cash instead of selling them and pushing yields higher. This move could reshape Treasury-Fed cooperation under new Fed Chair Kevin Warsh and give the Fed a larger role in US financial diplomacy.