Bessent’s ‘Whatever Is Necessary’ Pledge on Yen Support Faces Skepticism Over US Firepower

U.S. Treasury Secretary Scott Bessent said he would do “whatever is necessary” to help Japan defend the yen, but markets are questioning how much capacity the Treasury actually has to intervene.

Bloomberg reported on Aug. 10 that the yen traded above 159 per dollar intraday, surrendering roughly half of the gains from the joint U.S.-Japan yen-buying intervention on July 31. The dollar-yen rate briefly fell into the 155 range at the time before resuming its climb.

After the joint intervention, Bessent said he would take any steps that helped the U.S. economy, taxpayers and global financial stability. Even so, traders say the Treasury’s resources for direct foreign-exchange intervention are limited.

The Treasury’s Exchange Stabilization Fund, or ESF, which is used for currency-market operations, is less than $220 billion. Japan, by contrast, is estimated to have spent about $53 billion in a single day on July 30 to support the yen.

Nathan Tuft, a senior portfolio manager at Manulife Investment Management, said joint intervention with Japan could influence market sentiment but would struggle to change the underlying direction of the exchange rate. U.S. intervention capacity is far from unlimited.

In theory, the Federal Reserve can issue dollars and therefore has the ability to intervene on an effectively unlimited scale. But in last month’s joint intervention, it was reported to have served only as the executing agent, buying yen on behalf of the Treasury.

Bessent also proposed expanding the Fed’s FIMA Repo facility, which allows foreign monetary authorities to raise dollars using their U.S. Treasury holdings as collateral. Recently released Fed data, however, showed no sign that Japan had actually used the facility.

Markets see the odds of another round of intervention by Japan or jointly by the U.S. and Japan rising if the dollar-yen rate moves back above 160. Still, the impact may be limited unless the underlying drivers of yen weakness — including the U.S.-Japan rate gap, concerns over Japan’s fiscal position and geopolitical risks — begin to ease.

Goldman Sachs said the muted market response to the latest joint intervention reflected the fact that the root causes of yen weakness remain in place. Without a change in the global backdrop or a policy shift, pressure on the yen is likely to reemerge over time.