| Goldman Sachs and Morgan Stanley carried out the trades for the New York Fed. |
| LEAD ESSAY / 4 MIN / 6 DOCUMENTS / STORY FILE YEN-INT |
|
| How much of your money went into the Japanese yen this summer? |
| Try to find out. I mean that, go looking for the number. You will end up at the Exchange Stabilization Fund, which in plain English is a pot of Treasury money that can be spent in currency markets without a vote in Congress. Scott Bessent controls it, and on July 31 he used it. |
| The Federal Reserve Bank of New York did the buying on his behalf. It sold euros, took the proceeds, and bought Japanese yen, and it put those trades through Goldman Sachs and Morgan Stanley. Two banks, one afternoon, and a price the public has still not seen. |
|
The notepad said $5 to $10 billion |
|
| A Reuters photographer caught a page of Bessent's handwriting on July 31. It read: buy Japanese yen, $5 to $10 billion. Treasury has never confirmed that figure, and it has never published what it spent. So a photograph of a to-do list is the closest thing to a receipt that exists. |
|
| "Congress intends for these authorities to be invoked judiciously to advance the national interest." |
| ELIZABETH WARREN, VIA SENATE BANKING |
|
|
| Understand what the fund is. Congress set it up in the Gold Reserve Act of 1934, and it holds dollars, foreign currency and gold that the Secretary can deploy on his own authority. He needs no appropriation for it, and the Senate holds no vote on it. Last autumn the same fund carried a $20 billion line to Argentina, weeks before an election that its president needed to win. |
| Japan spent more, and Japan says so. Its Ministry of Finance publishes intervention totals every month, and the window from July 30 to August 26 came in at 15.4 trillion yen, roughly $96 billion, the largest month Tokyo has ever recorded. Goldman Sachs put the first two days alone at as much as $85 billion. Tokyo publishes the figure. Washington offers a statement instead. |
|
Elizabeth Warren asked five questions |
|
| On August 13 the ranking member of the Senate Banking Committee sent the Secretary a letter. She asked for the legal analysis behind the operation, the expected cost to taxpayers, and whether the European Central Bank had been told before Treasury sold its euros. Her deadline was August 28. |
| FILED / LETTER TO SECRETARY BESSENT ON THE YEN INTERVENTION |
|
| The letter asks for the legal basis under the Gold Reserve Act of 1934 and for the scale, conditions and expected taxpayer cost of the support. It asks whether the European Central Bank was consulted before its currency was sold. It also asks whether the Secretary would raise the $60 billion cap on the Federal Reserve facility that lets foreign central banks borrow dollars against Treasurys. |
|
| The reply arrived on August 27 and ran one page. Bessent wrote that Treasury exchanged foreign currency assets it already held, that no new appropriation was involved, and that Japan owes the department nothing. He opened by telling a senator she understands foreign exchange even less than she understands banking. He did not give the amount. Read the letter he was answering and count what he left alone. |
|
Two central banks decide this week |
|
| Both halves of the trade report for duty inside three days. The Federal Reserve rules today, with markets pricing a quarter point rise toward a range of 3.75% to 4.00%. Its counterpart in Tokyo follows on Friday, where swap pricing puts a quarter point rise to 1.25% at close to certainty. Traders call the gap between those two rates the carry, and borrowing cheap yen to buy dollar assets has been the most crowded position in global markets for years. |
| July's rescue made that borrowing cheaper for a fortnight. Japanese investors used the stronger yen to buy more than 5 trillion yen of foreign stocks and bonds in the two weeks to August 15, which is the opposite of what a rescue is supposed to produce. Bessent has since called for the Fed to lift the cap on its dollar facility so Tokyo can lean on it harder. |
| Here is where you come in. Japan holds about $1.1 trillion of US government debt, more than any other foreign creditor, and the price of the yen decides what Tokyo does with it. If Japan sells Treasurys to defend its currency, long-term American rates climb, and the rate on your mortgage climbs behind them. Treasury spent your fund defending that arrangement in July. It still will not tell you the bill. |
