Bessent blasts Warren's yen claims, defends $96.5B FX intervention

Treasury Secretary Scott Bessent mocked Senator Elizabeth Warren's grasp of foreign-exchange markets in a letter defending the US yen intervention, saying her critique was "wrong about where the money came from, what the transaction was, and whether there was even a borrower."

"The American people deserve oversight grounded in facts rather than slogans," Bessent, a former currency trader who built his fortune at hedge funds, wrote in the letter dated Thursday. "Although I am not holding my breath, I hope your next letter will demonstrate that you have learned the difference between a currency purchase and a swap or a loan."

Japan spent a record $96.5 billion intervening in foreign-exchange markets between July 30 and Aug. 26, according to government data released Friday, while Treasury has not disclosed the size of its own yen purchase. The intervention marked the first coordinated US-Japan effort to strengthen the currency since 1998, with Treasury acting through the New York Fed to sell euros and buy yen.

The exchange shows the stakes of Washington's first coordinated currency intervention in nearly three decades. Bessent defended the move as protecting US economic interests, pointing to Japan's role as the largest foreign holder of US Treasuries at more than $1.1 trillion, a key trading partner and a treaty ally.

The dispute began Aug. 13, when Warren, the ranking Democrat on the Senate Banking Committee, demanded details about Treasury's use of the Exchange Stabilization Fund, or ESF, arguing that American taxpayers could ultimately be on the hook if Japan proved unable to repay Treasury. Bessent flatly rejected that premise.

"Treasury exchanged existing Exchange Stabilization Fund foreign-currency assets for yen," he wrote. "No new congressional appropriation was involved, and no credit was extended to Japan. Japan owes Treasury nothing. There is therefore no risk that Japan will fail to repay a debt that does not exist."

Warren seized on the lack of disclosure, demanding to know the scale of US financial support, its potential cost to taxpayers and Treasury's legal justification for using the ESF. A Reuters photograph taken July 31 showed a notepad in front of Bessent bearing the words "To Do Buy Japanese Yen (JPY) $5-10 bil," indicating a contemplated purchase in that range without establishing how much Treasury ultimately bought.

Bessent answered the legal question with another jab. "Your legal question is answered by the statute cited in your own footnote," he wrote, saying Section 5302 authorizes the Treasury secretary, with presidential approval, to deal in foreign exchange in support of orderly exchange arrangements. "Treasury's legal analysis begins with reading the statute. I recommend you try the same."

Yen Surge Fades as 30-Year Yields Test 20-Year Highs

The spat lands as Bessent's broader market interventions draw fire from investors who warn that capping long-term yields without fixing fiscal fundamentals risks a weaker dollar. Thirty-year Treasury yields are testing 20-year highs, and the $32 trillion Treasury market is growing wobbly, with the national debt topping $40 trillion.

Stanley Druckenmiller, the famed investor who mentored Bessent at Soros Fund Management, used the pages of the Wall Street Journal to slam the gamble. "Governments defending prices against fundamentals always lose," Druckenmiller wrote.

The yen initially surged following the intervention before giving back much of those gains later in August. Japan's benchmark rate still sits at 1 percent, 27 years after it first went to zero, and roughly 90 percent of Japanese government bonds are held domestically — a shock absorber Washington lacks.

Brooks Warns of a Devaluation Spiral

Brookings economist Robin Brooks cautioned that intervention rarely works over the long run. "As Japan shows, it can be next to impossible to stabilize a currency once it enters a devaluation spiral," Brooks said, noting Tokyo spent decades holding JGB yields artificially low to mask the side effects of a debt load near 250 percent of GDP.

In her letter, Warren invoked Treasury's previous use of the ESF to provide $20 billion in support to Argentina, calling that intervention politically driven. Bessent fired back that the Argentina operation was designed to address "acute, short-term illiquidity" and prevent a broader regional crisis. "The best-managed crisis is the one that never happens," he wrote. "You, by contrast, appear to view preventable crises not as failures to avert but as welcome opportunities to expand government control — with ordinary Americans paying the price."

The Post has sought comment from Warren.

This article is for informational purposes only and does not constitute investment advice.