Treasury Secretary Scott Bessent is seeking a novel mechanism to support the Japanese yen that does not require the U.S. government to sell Treasuries into a sensitive domestic bond market.
The proposal would draw the Federal Reserve into the administration’s foreign exchange defense efforts by expanding a lending facility, specifically the Foreign and International Monetary Authorities (FIMA) repo program, to provide liquidity to Japanese authorities.
The strategy represents a significant shift in how Washington might intervene in currency markets.
Traditional coordinated interventions involve the Treasury selling foreign currency reserves or engaging in direct swaps, which can sometimes pressure domestic asset prices.
By leveraging the Fed’s balance sheet through repo operations, Bessent aims to provide dollar liquidity to Japan without adding supply to the U.S. Treasury market, which has been under pressure from rising issuance and fiscal deficits.
This development follows recent signals from Bessent that Washington is prepared to repeat coordinated foreign exchange interventions with Japan to counter disorderly movements in the yen.