U.S. Treasury Secretary Scott Bessent says he has inside knowledge of Japanese policy and is daring investors to short the yen. The dare came alongside a Treasury announcement that it will repurchase up to $6 billion of longer-dated bonds on September 10, an operation aimed at reining in surging Treasury yields.
Treasury Secretary Scott Bessent told an audience at Southern Methodist University's business school that he knows how Japan will respond if Washington intervenes in the yen again, and he challenged traders to bet against him. According to The Motley Fool: "I am the house now", Bessent said during the September 8 speech.
A second yen intervention in months
The comments follow the first U.S. yen-buying intervention since 1998, when Washington coordinated with Japan to stabilize the currency after USD/JPY had climbed to nearly 164. Japan itself spent a record $96.4 billion defending the currency. USD/JPY has since dropped to around 153, a move of roughly 7% in the yen's favor.
Separately, The Motley Fool reports the dollar-yen rate strengthened from about 158.89 five days ago to about 153.63 as of the report. Japan's Finance Ministry holds over $1.1 trillion of U.S. Treasury debt, and if the yen weakens further, it would likely need to sell Treasuries to defend it, which could push U.S. yields higher.
Bond buybacks scale up alongside the yen bet
Coinciding with the speech, the Treasury also disclosed plans to repurchase $5 billion to $6 billion of longer-dated bonds. The Motley Fool notes the operation is triple the normal size of roughly $2 billion.
The move comes as the 10-year Treasury yield sits near 4.85%. The 30-year yield trades near 5.30%. U.S. debt has topped $40 trillion. The fiscal deficit sits near $1.8 trillion.
Analysts at Wrightson ICAP wrote that quadrupling or quintupling the repurchase size to the $8 billion-to-$10 billion range is not out of the question, but cautioned it would amount to a second major shift in Treasury debt strategy in two weeks.
Carry trade positions absorb the swing
The yen's rebound matters most for the carry trade, where traders borrow in yen at low Japanese rates and convert into higher-yielding currencies. A stronger yen forces those positions to unwind, and the seven-percent appreciation since the intervention has already inflicted pain on leveraged carry traders.
Bessent — a decorated currency trader who famously shorted the British pound in 1992 — is betting the Treasury's dual intervention in currencies and bonds can hold the line. Investors weighing the other side of that trade now have Bessent's own words to answer.
Sources: The Motley Fool, Crypto Briefing
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