US Treasury’s Bessent warns yen volatility risks spillover to global markets

U.S. Treasury Secretary Scott Bessent has cautioned that instability in the Japanese yen could lead to financial market disruptions and increased borrowing costs for American households and businesses, according to an official letter released on Friday. The letter, addressed to Senator Elizabeth Warren and posted on Secretary Bessent's X account, was in response to her request for clarification on the joint currency intervention between Washington and Tokyo last month.

The intervention, conducted between July 31 and August 1, aimed to prevent a severe sell-off in the yen and Japanese government bonds that threatened to destabilize global financial markets. Despite the initial success of the intervention, which helped the yen rebound from a historic low, its effects have been short-lived, with the currency recently slipping back towards the 160 mark against the dollar.

Bessent defended the decision to work with Tokyo, explaining that the U.S. Treasury's Exchange Stabilization Fund (ESF) was used to stabilize the situation, mirroring its previous role in managing crises such as Argentina's financial distress. The ESF, a tool for maintaining stability in foreign-exchange and domestic markets, was also utilized last year to support Argentina's peso market and establish a $20 billion currency swap facility.