Bessent Deploys $10 Billion to Defend Yen as Washington Shields Japan-Funded US Carry Trade
Updated
Updated · The Guardian · Aug 12
Bessent Deploys $10 Billion to Defend Yen as Washington Shields Japan-Funded US Carry Trade
3 articles · Updated · The Guardian · Aug 12
Summary
$10 billion or more in euro sales for yen formed the core of Scott Bessent’s latest effort to stop the currency sliding back toward 160 per dollar after last week’s joint U.S.-Japan intervention.
Washington’s aim is less to rescue Japan than to preserve the yen-funded carry trade that channels cheap Japanese borrowing into higher-yielding U.S. assets, including heavily leveraged AI and tech bets.
A renewed drop toward 164 yen could force Tokyo into rate hikes or trigger a disorderly unwind, as investors dump U.S. assets to repay costlier yen debts and the stronger currency amplifies losses.
Japan’s $1.1 trillion Treasury hoard is the other risk: selling it to buy yen would push U.S. yields higher, so Bessent has backed dollar borrowing against those holdings through the Fed’s FIMA repo facility.
He is now seeking to raise that facility’s $60 billion daily limit, betting U.S. official support can deter traders from testing the yen again while avoiding both a Wall Street rout and Treasury-market strain.
Will Tokyo's massive dollar-buying spree trigger a shockwave in US Treasury yields despite their secret repo strategy?
Can Japan truly rescue the sinking yen without collapsing its own fragile, debt-heavy domestic economy?
The July 2026 USD/JPY Joint Intervention: Anatomy, Triggers, and Global Fallout from a 39-Year Yen Low
Overview
In July 2026, the Japanese yen plunged to a nearly 40-year low due to a stark policy gap between Japan’s ultra-loose monetary stance and the U.S. Federal Reserve’s higher rates. This fueled massive yen carry trades and relentless selling pressure. As energy costs soared from Middle East turmoil and Japan’s aggressive fiscal expansion shook market confidence, fears grew that Japan might sell U.S. Treasuries to defend its currency. In response, the U.S. broke tradition and joined Japan in a surprise joint intervention, triggering a sharp yen rally. However, without closing the interest rate gap, these interventions offer only temporary relief.