U.S. Treasury’s Yen Interest Rate Check

A report from the Nihon Keizai Shimbun reveals that the U.S. Treasury Department carried out a check on yen interest rates in January to help stabilize the market during a turbulent election period in Japan.

Summary:

• Treasury Secretary Scott Bessent directed the yen interest rate check in January.

• Senior U.S. officials noted that Japan did not request this action.

• The initiative aimed to soothe market instability prior to Japan’s House of Representatives elections.

• Following the check on January 23, the yen recovered from about 158 to approximately 155 against the dollar.

• The U.S. is ready for coordinated intervention if a formal request is made.

Scott Bessent, U.S. Treasury Secretary, was at the forefront of the yen interest rate check in January, as the currency was significantly weakening against the dollar, according to senior officials. This measure was intended to stabilize the market rather than a direct response to a request from Japan.

The New York Fed conducted these checks on January 23 at the Treasury’s direction, coinciding with the yen’s decline toward the 158 level amid rising political uncertainty before the February 8 elections. Bessent expressed concerns regarding potential market volatility during this “political vacuum” and its impacts on global bond markets.

Typically, interest rate checks signal possible currency interventions, which include consulting financial institutions about pricing. Consequently, the yen’s exchange rate quickly rose to about 155 yen to the dollar.

U.S. officials stated that Japan’s Treasury had not requested any interest rate checks or coordinated interventions at that time. However, they indicated Washington would consider joint actions if Tokyo had made such a request.

This context relates to increasing yields on Japan’s long-term government bonds, with newly issued 40-year bonds reaching 4% for the first time. As a result, selling pressure impacted U.S. Treasuries, pushing the 10-year Treasury yield closer to 4.3%, before it settled around 4.0% after the check.

Officials mentioned that Bessent was worried markets were misinterpreting signals from Japan’s bond market, and that rising global yields might threaten broader financial stability. This initiative aligns with the United States’ strategy of using economic power to bolster its allies.

Post-election, following Prime Minister Sanae Takaichi’s significant victory, U.S. authorities feel that political uncertainty has diminished. They expressed confidence in both Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda.

Currently, there are no specific measures planned, but U.S. officials have indicated continued close collaboration with Japan.