A recent historic intervention conducted jointly by the U.S. and Japan to shore up the weakening yen risked hitting other Asian markets, U.S. Treasury Secretary Scott Bessent said, likening the situation to the region's late-1990s financial crisis.
The operation last week to buy yen for the first time since 1998 came after the unit slumped to a four-decade low of almost 164 per dollar.
With regard to "the Asian financial crisis, in my opinion, part of it was triggered by an overly weak yen. So I think a stable yen is not only important for the U.S., but very important for the entire region," Bessent told CNBC on Tuesday.
"If the yen were to weaken substantially, then the other currencies would follow it. We've seen excess volatility in the Korean won. Many people believe that the Chinese renminbi is undervalued," he said.
"So, given the trade flows, given the size of the (Japanese) economy, given their contributions in the global savings market, (it's) very important to have a stable yen."
The comment about savings likely refers to reported concerns in Washington that Japan, as the biggest holder of American debt, might sell its Treasuries to finance solo intervention, adding to pressure on U.S. bond yields.
Experts say the Trump administration also acted to reduce the U.S. trade deficit as a weak yen helps Japanese exporters, and to help Japan invest $550 billion in the United States as promised under a 2025 trade deal.
Before Friday's joint operation, the yen had been sliding for months despite Japan spending tens of billions of dollars to support the currency.
Reasons for the slide include the gap between Japanese and U.S. interest rates, high oil prices and concerns about Prime Minister Sanae Takaichi's spending plans swelling Japan's enormous debts.
Washington and Tokyo have signalled to markets that they are ready to act again, and the yen on Wednesday was trading around 4% higher than last month's low.
"And at the end of the day, you can get market signals ... but at the end of the day, it's going to be (Japanese government and monetary) policy and fundamentals" that will determine the yen's exchange rate, Bessent said.
Goldman Sachs researchers said that "this intervention will likely only be a temporary, albeit significant, reprieve if it is not reinforced by a material change in the global growth outlook or domestic policy mix."
"We are skeptical that (the U.S.) Treasury's involvement is a harbinger of more significant domestic policy changes in Japan," they added.
"We think it is much more likely that Treasury sees this as a low-cost option to work with Japanese officials to help minimize the potential for unwelcome volatility in the U.S. Treasury market, rather than taking a strong view on the yen."
