Weak Fed and yen is Bessent's perfect pair trade

WASHINGTON, August 5 (Reuters Breakingviews) - The Federal Reserve’s tool shed is strewn with lending facilities gathering dust from past financial crises. Treasury Secretary Scott Bessent has picked one up in recent days, intervening in Japanese currency markets. The goal was to stabilize the yen, lowering the odds that the Asian nation might have to engage in maneuvers that entail selling its $1.1 trillion of U.S. government debt. The action shows that the Trump administration's appetite for claiming the central bank's powers has not dissipated. New Fed Chair Kevin Warsh’s stumbling start provided an opening for this interference.

The administration’s intervention to stabilize the yen makes use of a 2020 temporary repurchase facility at the Fed for foreign governments. The world’s most powerful central bank creates such lending facilities during major liquidity crunches, like the early days of the Covid-19 pandemic. Though run by the Fed, it was set up in concert with the Treasury Department: a typical arrangement in emergency situations that recognizes the primacy of Treasury in carrying out international economic policy. After a crisis has dissipated, however, authorized programs are rarely fully sunset and instead remain ready for use by policymakers at any time.