Bessent Fights to Keep Japan's Cheap Yen Funding Wall Street's AI Boom

Japan's yen has slid back toward 160 to the dollar despite an extraordinary U.S.-Japanese intervention last month, as traders bet that Tokyo's ultra-cheap money will keep flowing into global markets.

Earlier this month, the Trump administration stepped in to help stabilize Japan's currency. Treasury Secretary Scott Bessent sold at least $10 billion in euros and bought yen to arrest its slide to a 40-year low, according to the source article, which argues the move was less a rescue of the yen than an effort to preserve a cash pipeline that benefits American markets.

Bankers borrow cheap yen, sell them for dollars, and buy higher-returning U.S. assets, particularly tech shares — a "carry trade" the article says is helping Wall Street lever hundreds of billions of dollars into artificial intelligence investment, an activity research suggests now consumes more than 1% of U.S. gross domestic product.

Traders are testing Washington's resolve. Rising oil prices tied to tensions between the U.S. and Iran are stoking inflation in Japan and weakening the yen further. If the currency slides back to 164 to the dollar, Japan could respond with aggressive interest rate increases — a move the article says would be unlikely because it would choke off Japan's investment cycle and could trigger a disorderly market unwind, as a stronger yen forces investors to sell U.S. assets to cover their positions.

The alternative — Japan selling off its $1.1 trillion stockpile of U.S. Treasury securities to buy yen — would drive up U.S. borrowing costs, an outcome the article says Bessent wants to avoid even more.

Instead, Bessent has allowed Japan to borrow dollars against its Treasury holdings to buy yen, using a Federal Reserve lending facility he wants expanded well beyond its current $60 billion daily limit. That would let Tokyo defend the yen without dumping U.S. debt or abandoning its own reflation efforts.

The article notes Bessent has a history in currency markets: he helped George Soros make a billion dollars betting against the British pound in 1992 and against the Japanese yen in 2013.