US Treasury Chief Pushes Fed for Bigger Yen Defense Fund Amid Currency Turmoil

In an unusual public move, US Treasury Secretary Scott Bessent has pressed the Federal Reserve to expand a key dollar liquidity tool, the Foreign and International Monetary Authorities (FIMA) repo facility, to help Japan defend its struggling yen. This comes right after the US and Japan carried out a rare joint currency intervention to prop up the Japanese yen, which had plunged to its weakest against the dollar in 40 years, hitting around 164 yen per dollar in late July 2026. Bessent's call highlights global concerns over currency stability and the intricate links between international financial markets. The core of the problem is Japan's need to get US dollars for its currency intervention efforts. Historically, this often meant selling off its vast holdings of US Treasuries, which could then push up borrowing costs and unsettle the crucial US bond market. The FIMA facility offers a way around this by letting foreign central banks temporarily swap their US Treasury holdings for dollars without selling them outright. The yen's extreme weakness is fueling inflation in Japan by making imports more expensive, while the recent joint intervention by Tokyo and Washington saw the US Treasury reportedly selling euros to buy yen, marking a significant shift in US currency policy. Now, the spotlight is on the Federal Reserve and its new Chairman, Kevin Warsh, as Bessent's public request sparks debate over the Fed's independence and its role in global currency stability. Whether the Fed will agree to 'upsize' the FIMA facility remains to be seen, as its policy-setting committee is not scheduled to meet until mid-September. The outcome will not only affect the yen's trajectory but also influence how countries manage their currencies without disrupting vital global bond markets, leaving traders and policymakers watching closely for any further coordinated actions or policy shifts.