“`html
Treasury Secretary Scott Bessent is seeking Federal Reserve assistance to support Japan’s weakening yen without disrupting the U.S. Treasury market. The proposal would expand the Fed’s FIMA Repo Facility, allowing Japan to access dollars through the lending program rather than selling Treasury bonds directly. This strategy aims to prevent increased pressure on U.S. borrowing costs at a sensitive time for the bond market.
The yen has deteriorated significantly since 2022, falling to 40-year lows as interest rate differentials between the United States and Japan widened. Last week, the dollar reached nearly 164 yen, prompting a rare coordinated intervention between U.S. and Japanese authorities. The Treasury used its Exchange Stabilization Fund to purchase yen, helping the currency recover about 4 percent by early this week.
Any expansion of the Fed facility would require approval from new Chairman Kevin Warsh, who is redefining how the Treasury and Federal Reserve cooperate. The move could reshape the relationship between these institutions and establish new precedent for the Fed’s role in supporting U.S. financial diplomacy. Bessent has emphasized the importance of currency stability given Japan’s substantial role in global financial markets and its contribution to worldwide savings.
“`
About the Author
