"Stability at risk": USA explains the unusual step

US Treasury Secretary Scott Bessent warns that unilateral and disorderly fluctuations in the Japanese currency (yen) could lead to "forced liquidation of positions." According to him, such a process threatens the stability of global financial markets and could ultimately increase loan and mortgage costs for households and businesses in the United States.

Bessent's remarks were written in a letter dated August 27, which was published on his X account the following day. The letter was sent in response to a request from Democratic Senator Elizabeth Warren for an explanation regarding the joint currency intervention carried out by Washington and Tokyo last month.

The rare move by Japan and the United States, in which joint yen purchases were made on July 31, was intended to signal the determination of both countries to prevent the sell-off wave in the yen and Japanese government bonds from spilling over into global markets.

The publication comes against the backdrop of the yen's return to a weakening trend against the dollar, despite expectations that the Bank of Japan might raise the short-term interest rate in the near future.

Although the Japanese currency recovered from a 40-year low (about 164 yen to the dollar last month) and jumped to the level of 155.20 yen to the dollar shortly after the joint intervention, it weakened again towards the 160 level. On Friday, it even briefly fell below this threshold — a limit considered by many as one that increases the likelihood of further intervention — following remarks by Federal Reserve Chairman Kevin Warsh, which reignited expectations for an imminent interest rate hike in the US.

In his letter, Bessent clarified that the US Treasury carried out the intervention by exchanging foreign currency assets held in its Exchange Stabilization Fund for yen. The fund is an emergency reserve managed by the US Treasury with the goal of stabilizing foreign exchange markets and domestic financial markets.

Bessent compared this move to past activities of the department, noting that the exact same principle was applied in Argentina, where the Treasury used the fund to stabilize the country during a moment of acute short-term liquidity shortage and to prevent the problem from becoming a broader regional crisis.

As recalled, last year the US Treasury used the fund to support the peso market in Argentina and provided a swap line of 20 billion dollars with the goal of stabilizing the currency.

"The best-managed crisis is one that never happens," Bessent concluded, defending Washington's decision to join Tokyo's efforts to curb the disorderly declines in the value of the yen.