US and Japan Team Up to Prop Up the Yen — Now Bessent Wants the Fed In

Treasury Secretary Scott Bessent is pushing to expand a Federal Reserve repo facility for foreign central banks — a move that could pull the Fed deeper into his campaign to support the yen. According to the New York Times, Bessent called for expanding the Fed's FIMA Repo Facility when he announced the intervention on Sunday. Created by Congress in 2020, the facility currently allows central banks holding US Treasuries to borrow up to $60 billion to bolster dollar positions.^[NYT] The push comes as the US and Japan executed a rare joint yen-buying intervention on Friday to stop the currency's slide to 40-year lows. As of 4:00 p.m. Beijing time Monday (pre-market in New York), markets were still digesting the news, with US equity futures and FX trading not yet in full swing.

Bessent Back to His Hedge Fund Roots — Notebook Reveals Intervention Scale

More than a decade ago, Bessent made $1 billion shorting the yen as George Soros's chief investment officer. Now he's leaning on the heft of the US economy to prop the currency up. The New York Times reports that Bessent's goal this time is to help ensure Washington's borrowing costs don't climb further and to support a US ally wobbling in "China's backyard."^[NYT] The coordinated effort late last week to stabilize the rapidly weakening yen marks the second time in the past year that Bessent has returned to his hedge-fund roots with a big currency bet.^[NYT]

The scale of the intervention hasn't been disclosed. But a photo of Bessent's notebook from Friday's cabinet meeting — which he has previously said he deliberately leaves open for the press — showed "Buy $5-10 billion yen" on his to-do list.^[NYT] The Treasury's latest currency report last month said the yen was significantly undervalued and that excessive volatility in currency trading was "undesirable."^[NYT] FX analysts say the US used its euro holdings to buy yen, boosting the currency's value without shaking market confidence in the dollar.^[NYT]

First Joint Intervention Since 2011 — Yen Surges

Japan's Ministry of Finance confirmed Monday that it had conducted a coordinated yen-buying intervention with the US and said it would not hesitate to take further action. It's the first joint intervention by the two countries since the G7 coordinated move to weaken the yen after the Great East Japan Earthquake in 2011.^[Reuters] In a statement, the ministry said Friday's yen-buying intervention with the US Treasury "addressed the excessive volatility and disorderly moves seen recently in the yen exchange rate."^[Reuters]

The yen surged more than 1% after the intervention was announced, hitting 155.20 per dollar — its strongest level since early May and well off the 40-year low near 164 touched last month.^[Reuters] President Donald Trump said Sunday that US help in propping up the yen was a sign of friendship and a way to help the global economy.^[Reuters] Analysts note that beyond helping Japan — a key US strategic ally in Asia — the intervention also helps Washington address concerns about the yen's unusual weakness, which has been offsetting the trade advantages of Trump's tariffs.^[Reuters]

Bessent Pushes Fed Repo Expansion — Central Bank's Role in Focus

Bessent called for expanding the Fed's FIMA Repo Facility when he announced the intervention on Sunday. The facility currently allows central banks holding US Treasuries to borrow up to $60 billion.^[NYT] According to TIME, Bessent also said the US may consider expanding the size of the Fed's repo facility that provides temporary dollar liquidity. "The FIMA repo facility is an important backstop. We encourage expanding its size in the coming months," he said.^[TIME]

In a statement posted on X, Bessent said: "We strongly support Japan's decisive market and currency measures to correct the significant undervaluation of the yen." He also reiterated his call for the Bank of Japan to raise rates further.^[Reuters] The remarks put the spotlight on the BOJ, which held rates steady last week but signaled it could hike as soon as its next policy meeting in September.^[Reuters] "The comments from Mimura and Bessent must be music to the ears of the hawks at the BOJ," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. "I feel a September hike is a done deal. There's no point in the BOJ waiting until October and triggering another round of yen depreciation."^[Reuters]

Intervention Size Data Diverges — BOJ in the Spotlight

Japan likely spent around $34 billion on Friday to prop up the yen, according to a Bloomberg analysis of central bank data. TIME noted it could not independently verify the figures.^[TIME] And before Friday's confirmed joint intervention, BOJ data showed Japan may have sold as much as $58.97 billion on Thursday in New York markets to buy yen.^[Reuters]

Japan's top currency official, Atsushi Mimura, said Monday: "The joint intervention is the fruit of the Japan-US alliance. We will continue to stay aligned with the Bank of Japan's monetary policy."^[Reuters] The two-year Japanese government bond yield — the most sensitive to near-term policy moves — hit 1.545% intraday Monday, the highest since 1995, as markets priced in the possibility of an early rate hike.^[Reuters]

Japan has been struggling with a persistently weak yen, which has pushed up import prices and overall inflation, squeezing household budgets and Prime Minister Takaichi Sanae's approval ratings.^[Reuters] Tokyo's unilateral intervention in late April to early May only triggered a brief yen rebound. The BOJ's June rate hike to 1% — a 31-year high — also failed to give the weak yen a lasting boost.^[Reuters]

Months of Preparation Behind the Move — Rare Public Alignment on FX Policy

The joint intervention followed months of preparation, with Washington and Tokyo unusually aligning their interests publicly on currency policy.^{[Daily Sabah]} A Japanese government official with knowledge of the matter told Reuters that US participation in yen-buying intervention was first considered as early as January, when the New York Fed conducted a rare rate check to help Tokyo cope with the yen's decline.^{[Daily Sabah]}

Finance Minister Yukiko Kato revealed Monday, as she announced the joint intervention: "Including online meetings, we held about 10 talks on topics including exchange rates. When he visited Japan in May, we talked for three and a half hours, including over dinner."^{[Daily Sabah]} The May talks came after Japan's massive yen-buying intervention in late April to early May, which failed to reverse the currency's downtrend.^{[Daily Sabah]}

Bessent said at the time that Japan's fundamentals were "strong and resilient, and that will be reflected in the exchange rate," and reiterated his call for the BOJ to accelerate rate hikes — a sign Washington worried the central bank's slow pace could leave it behind the curve on inflation.^{[Daily Sabah]} A month later, the BOJ raised rates to 1% — a 31-year high — a milestone step in policy normalization. But with real borrowing costs in Japan deeply negative, the move failed to give the weak yen a lasting boost.^{[Daily Sabah]}

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