US Treasury Joins Yen Rescue With Unusual Euro-Swap Move
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- Treasury Secretary Scott Bessent coordinated with the Bank of Japan last Friday to stem the yen's decline — an unusual joint intervention that briefly sent the yen soaring in value.
- The Treasury converted euros, not dollars, into yen via a little-used Federal Reserve facility, a move designed to support the yen without adding to selling pressure on US bonds.
- The yen had fallen roughly 10% over the past year as Japan's ultra-low rates (less than half Canada's, a quarter of US/UK levels) fuelled carry trades and lifted import costs.
- Japan's bond market is under strain: demand has fallen below supply, pushing Japanese interest rates up nearly 1.5 percentage points over the past year.
- Each one-point rise in US 10-year Treasury yields now costs the federal budget roughly US$400-billion, given the scale of US debt — the backdrop Bessent is navigating.
- By week's end the yen had resumed sliding, and the column warns that a forced unwind of foreign bond holdings into Japan could push interest rates higher globally.
Why it matters: Japan's bond demand is crumbling (rates up 1.5 points in a year) while each extra point on 10-year US yields now costs the budget roughly US$400-billion. Bessent's euro-for-yen swap props up Tokyo without adding Treasury selling pressure — but a yen carry-trade unwind could still lift rates globally.
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