Bessent warns yen volatility risks global market stability

The United States and Japan launched a rare coordinated intervention in late July to prop up the yen after it slid to 40-year lows, marking the first joint currency operation between the two nations since 2011 and the first time the U.S. Treasury bought yen in concert with Tokyo's Ministry of Finance since 1998. Nearly a month later, the yen's gains have largely faded, raising questions about whether the intervention can produce lasting results.nytimes+1

A Rare Show of Force

Japan's Finance Minister Satsuki Katayama confirmed on August 3 that the Ministry of Finance had purchased yen in coordination with Washington to counter "excessive volatility and disorderly movements" after the currency hit nearly 164 per dollar in late July. Bank of Japan data indicated Tokyo may have spent close to $59 billion buying yen in the days surrounding the joint action, while a Reuters photograph of a notepad in front of Treasury Secretary Scott Bessent during a cabinet meeting suggested the U.S. committed between $5 billion and $10 billion.reuters+2

The yen initially surged past 155 per dollar following the announcement, but by late August it had drifted back toward 160, underscoring what analysts describe as the defensive nature of the operation. As one column published by Astro Awani noted, the interventions "simply helped halt the weakness in the yen" rather than driving lasting appreciation.international.astroawani+2

Bessent's Rationale

Bessent laid out his reasoning in a CNBC interview on August 4, warning that a weak yen could set off competitive devaluations across Asia reminiscent of the 1997-98 financial crisis. "A stable yen is not only important for the U.S., but it's very important for the entire region," he said. On August 29, Bessent reiterated that disorderly yen moves could trigger "forced unwinds" of trading positions that risk destabilizing global markets and raising borrowing costs for American households.wsj+2

The intervention also aligns with the Trump administration's broader goal of weakening the dollar to support U.S. manufacturing competitiveness. But the challenge, analysts say, is engineering dollar depreciation without undermining confidence in U.S. dollar-denominated assets.international.astroawani

Carry Trade Complication

Rather than discouraging speculative bets against the yen, CNBC reported that the intervention may have "turbo-charged" the carry trade, with Japanese investors purchasing more than 5 trillion yen worth of overseas assets after the currency temporarily strengthened. With the USD/JPY pair drifting back toward pre-intervention levels, the Peterson Institute for International Economics noted the U.S. "wants to have its cake and eat it too" — stabilizing the yen while avoiding sales of U.S. Treasuries that could push American borrowing costs higher. Japan holds roughly $1.1 trillion in liquid foreign reserves, but any drawdown beyond about $130 billion would require selling large amounts of Treasuries — a move Washington may resist.piie+2

Whether Tokyo has the ammunition and the will to sustain the fight remains the central question heading into the fall.