US Treasury Secretary Scott Bessent has cited the potential for sharp instability in the yen market to drive up US interest rates as the rationale behind the US's unusual intervention to buy yen last month.

According to Bloomberg News and other outlets on the 28th local time, Bessent made the remarks in a letter dated the 27th to Democratic Senator Elizabeth Warren, stating that "Japan is a major holder of US Treasuries."

Previously, Senator Warren had requested further explanation regarding the justification and risks associated with the Treasury using its Exchange Stabilization Fund (ESF) as the US intervened to buy yen for the first time since 1998.

The ESF is a fund operated by the US Treasury to stabilize foreign exchange markets and can be used for foreign currency transactions.

Bessent stated that "disorderly conditions in the yen market could trigger forced position liquidation," adding that "this could destabilize global markets and ultimately drive up borrowing costs for American households and businesses."

In explaining this to Senator Warren, Bessent essentially admitted that the ultimate intention behind the US stepping in to support the yen was to prevent a rise in US Treasury yields.

In late July, the US intervened in the foreign exchange market alongside Japan to prevent a sharp plunge in the value of the yen.

It was the first time the US had intervened in the foreign exchange market by purchasing yen since 1998.

However, Bessent did not disclose the specific amount of money the US poured into the intervention at the time.

Regarding the method of intervention, he explained that "the Exchange Stabilization Fund (ESF) exchanged foreign currency assets it already held into yen."

This explains that rather than lending funds to Japan, the ESF swapped foreign currency assets it already possessed for yen.

Bessent emphasized, "This was not the extension of credit to Japan," adding, "Japan owes nothing to the US Treasury, and therefore there is no risk of Japan failing to repay a non-existent debt."

Bessent explained that the Treasury complied with relevant laws, noting that the laws governing the ESF explicitly empower the Treasury Secretary to conduct foreign exchange transactions with the President's approval.

(Photo: AP, Yonhap News)