Treasury Secretary Scott Bessent recently led a coordinated effort by the United States and Japan to stabilize the rapidly declining Japanese yen, marking the second such intervention involving him in the past year. The initiative aimed to bolster the yen, which had fallen to a 40-year low of approximately 146 per dollar, and to protect U.S. economic interests amid growing volatility in global currency markets.

During a meeting last Friday, a memorandum visible on Bessent’s notepad indicated plans to purchase between $5 billion and $10 billion worth of yen. According to Treasury reports, the yen was considered substantially undervalued, and excessive volatility in its trading was viewed as undesirable. To support the yen, the U.S. reportedly used its holdings of euros rather than dollars, thereby avoiding potential downward pressure on the greenback and signaling a subtle shift from the longstanding U.S. policy of maintaining a strong dollar.

Bessent emphasized the importance of a stable yen for regional economic stability, noting Japan’s commitment to sound economic policies. He also highlighted concerns that further depreciation of the yen could negatively affect the currencies of South Korea and China. The intervention coincided with an expansion of the Federal Reserve’s repurchase agreement facility for foreign and international monetary authorities, designed to support smooth functioning of the U.S. Treasury market. This measure allows central banks holding U.S. debt to borrow up to $60 billion, facilitating liquidity amid market stress.

Japan, as the largest holder of U.S. debt, faced potential pressure to sell Treasuries to support its currency, a move that could have driven U.S. borrowing costs higher. Rising interest rates are a concern for the Trump administration, particularly with the approaching midterm elections, as elevated mortgage and car loan rates could impact voter sentiment.

However, some analysts question the intervention’s long-term effectiveness. Robin Brooks, a senior fellow at the Brookings Institution, argued that the yen’s weakness primarily stems from Japan’s large public debt rather than speculative trading, suggesting that currency support offers only a temporary reprieve without addressing underlying fiscal challenges. Mark Sobel, a former Treasury official, cautioned against using such interventions absent comprehensive Japanese economic reforms, warning that the Exchange Stabilization Fund should not be treated like a hedge fund.

Political considerations also appear to have influenced the timing of the U.S.-Japan collaboration. Japan’s Prime Minister Sanae Takaichi has experienced declining approval ratings amid rising living costs linked to yen depreciation. The U.S. has been strengthening ties with Japan as part of a broader strategy to counterbalance China’s regional influence. Japan pledged more than $500 billion in investment in American manufacturing last year, enhancing economic cooperation between the two nations.

This latest intervention recalls Bessent’s involvement last fall in assisting Argentina’s economy by supporting its weakening peso and backing President Javier Milei’s political efforts through currency market actions. While seen as successful at the time, some observers remain wary of the broader implications of using economic tools for political objectives.

The current move underscores the Trump administration’s willingness to engage directly in currency markets to soothe financial volatility and defend strategic alliances, while also highlighting ongoing debates about the proper role and limits of such interventions.