Bessent says disorderly yen moves can destabilize global markets

• Bessent responded to Senator Elizabeth Warren's inquiry, explaining Treasury used its Exchange Stabilization Fund to prevent 'forced unwinds' of positions that could destabilize global markets
• The yen recovered from 164 per dollar to 155.20 after the rare joint intervention but has since weakened back toward the 160 threshold that could trigger further intervention
• Treasury cited precedent from Argentina support operations, emphasizing the ESF's role in preventing short-term crises from becoming broader regional problems

Summary: Bessent Warns on Yen Volatility and Global Market Stability

Key Development:

U.S. Treasury Secretary Scott Bessent warned that disorderly yen movements could trigger "forced unwinds" of positions, potentially destabilizing global markets and raising borrowing costs for American households and businesses.

Intervention Details:

• Japan and the U.S. conducted a rare joint currency intervention on July 31
• The action utilized the Exchange Stabilization Fund (ESF), exchanging foreign-currency assets for yen
• Intervention aimed to prevent yen and Japanese government bond selloffs from spreading globally

Market Data:

• Yen hit a 40-year low near 164 per dollar last month
• Currency briefly surged to 155.20 following intervention
• Has since weakened back toward the critical 160-per-dollar threshold
• The 160 level is widely viewed as triggering potential intervention

Context:

Bessent's comments came in an August 27 letter responding to Senator Elizabeth Warren's inquiry about the intervention. The yen resumed weakening despite expectations of Bank of Japan rate increases. Federal Reserve Chair Kevin Warsh's recent comments revived U.S. rate hike expectations, putting additional pressure on the currency.

Precedent:

The Treasury previously deployed the ESF to stabilize Argentina during acute short-term illiquidity and provided a $20 billion currency swap line to support the peso market last year.

Implications:

The Treasury's proactive stance signals concern about contagion risks from yen volatility. Bessent defended the intervention by emphasizing crisis prevention: "The best-managed crisis is the one that never happens." Markets remain vigilant as the yen tests intervention levels, with potential spillover effects for global financial stability.