Scott Bessent’s yen intervention signals new era of US ‘currency activism’
Bid to support Japan’s currency shows US is ready to scupper trades that push against its interests
Ian Smith in London, David Keohane in Tokyo, Kate Duguid in New York and Claire Jones in Washington
When Washington and Tokyo staged their first joint intervention to boost the Japanese yen in almost three decades, the man steering the US effort was no stranger to making high-stakes currency trades.
Friday’s move was spearheaded by Scott Bessent, a former trader who made his name betting against the pound in 1992 and the yen in 2013 while at George Soros’s investment firm.
At the helm of President Donald Trump’s Treasury, he has taken an increasingly activist approach to financial markets.
Washington’s historic intervention to prop up another nation’s currency stunned investors in part because the yen had been weakening more steadily than the chaotic moves that typically prompt co-ordinated action.
They were also struck by the decision to sell euros to buy the Japanese currency rather than using dollars.
The trade reflected the growing willingness of Bessent’s Treasury to delve deeper into forex markets after it swooped in to support the Argentine peso last year.
“It’s not for soft power, it’s not for the greater good, so what is the US doing?” said one big US bond investor.
Bessent’s unusual move came amid growing investor concern that the Bank of Japan’s policy rate, at 1 per cent, is not rising fast enough to keep up with inflationary pressures.
This could continue to drag on the currency, given that rates are much higher elsewhere in the world.
The US Treasury secretary was also hardly shy in touting the transactions, with a photographer capturing a to-do list written by Bessent at Friday’s cabinet meeting that read: “buy Japanese Yen (JPY) $5-10 bil”.
The interventions by the US and Japan have pushed the yen sharply higher from almost ¥164 to the dollar earlier this month, its weakest level since 1986, to about ¥158, although traders and analysts warned that the moves could quickly reverse.
“The irony of the guy working for Soros and [Stanley] Druckenmiller who broke the Bank of England back in ’92 pretending that you can do FX intervention alone, and lastingly defend a currency, is just amazing,” said Adam Posen, president of the Peterson Institute and an expert on the Japanese economy.
A note handwritten by US Treasury secretary Scott Bessent at Camp David, Maryland, last week © Daniel Heuer/ReutersInvestors said Washington’s move had poured uncertainty into major currency markets and kicked off a new era of government activism, with the US demonstrating its willingness to intervene in a trade that pushes against its interests.
“The US Treasury’s arrival marks a new sheriff in town, warning speculators away from selling the yen,” said Chris Turner, global head of markets at ING, saying it “marks a return to an age of FX activism”.
The US Treasury department declined to comment.
Both countries had good reason to act.
Japanese policymakers had fretted that the slide in the yen, alongside a brutal rout in Japan’s government bonds, was becoming excessive.
For the US, there were mounting signs that it was heaping selling pressure on the Treasury market.
While Trump said the US was “always there for Japan”, investors detected a desire to deter its ally from selling Treasuries — of which it is the biggest official owner — as part of its efforts to support the yen.
US officials have also previously highlighted the impact on American exporters from excessive dollar strength.
“The administration wants a weaker dollar . . . and they don’t want investors to dump Treasuries to protect their own currencies,” said Rushabh Amin, a multi-asset portfolio manager at Allspring Global Investments.
People seeking to short other currencies against the dollar were increasingly wary of a “Bessent bid”, said Amin.
Bessent has previously said the US supports a “strong dollar policy”, reflecting the country’s longstanding position.
Japan said on Monday that it planned to make use of a Federal Reserve repo facility that analysts argued could allow it to borrow dollars without having to sell Treasuries.
Treasuries have long been a liquid asset used by central banks to support their currencies, but the US is sensitive to any signs of a drop in demand for its debt at a time when its long-term borrowing costs have hit their highest since 2007.
At the start of the Iran war, foreign central banks slashed their holdings of Treasuries at the Fed to their lowest since 2012.
A separate worry is that a rise in JGB yields from a further bond sell-off could also encourage domestic Japanese investors to sell Treasuries and bring money home.
“Bessent’s view is that US bond yields are high because Japanese bond yields are high,” said Brij Khurana, portfolio manager at Wellington.
“So if you support the yen, you bring down yields in Japan and therefore in Treasuries.”
The slide in the yen “risked undermining” JGBs and “contributing to higher long-dated yields globally, something the US is very sensitive to”, said Mark Dowding, fixed-income chief investment officer at RBC BlueBay Asset Management.
There was also the potential of a trading gain, with Trump telling reporters “financial benefit” was a motivator.
“It was quite clever, reminiscent of Bessent’s lifeline to Argentina, which was a big success,” said Kenneth Rogoff, a Harvard professor and former IMF chief economist.
However, he added: “Unless the US Treasury is willing to hold massive buckets of yen — and that would be a truly radical break — it’s just a bandage to buy the BoJ a bit more time.”
Analysts say the intervention cannot by itself address the forces driving the yen lower, including a rising oil price, uncertainty about large-scale government spending plans and concerns about the relatively slow speed of BoJ rate rises.
“We all know that the interventions are only buying time.
The real heavy lifting is going to fall on the Bank of Japan and on Japan’s fiscal policy,” said Masahiko Loo, senior fixed-income strategist at State Street in Tokyo.
For the US, the risk is that the co-ordinated intervention fails and speculators begin to target the yen again and possibly Treasuries.
“If the intervention doesn’t work, the spillover effects [for long-term Treasuries] . . . would be significant,” said Daleep Singh, chief global economist at asset manager PGIM.
“So strap in.”
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