US Treasury Chief Publicly Urges Fed to Expand Yen Support Facility, Sparking Independence Debate
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Treasury Secretary Scott Bessent publicly urged the Federal Reserve to expand a liquidity facility that helps Japan defend the yen, intensifying debate over the central bank's independence.
Bloomberg reported on Aug. 3 that Bessent raised the need to expand the Fed's Foreign and International Monetary Authorities, or FIMA, repo facility after the US and Japan jointly intervened in the yen market.
In a social media post, Bessent wrote that FIMA is playing an important role in Japan's market-stabilization efforts. He said he expects the program to be expanded in the coming months.
FIMA allows foreign central banks and governments to obtain short-term dollar funding by posting US Treasuries as collateral. If Japan uses the facility instead of selling Treasuries outright to buy yen, it can limit disruption in the US government bond market.
Japan also confirmed the arrangement. Japanese Finance Minister Satsuki Katayama said Japan bought yen last week and plans to continue using FIMA. The Fed declined to comment.
The public appeal was seen as unusual because it called on the Fed to alter one of its facilities. Mark Sobel, a former senior Treasury official, said past Treasury secretaries were extremely reluctant to speak publicly about matters related to Fed policy. Had it been necessary, they would have raised the issue privately with the Fed chair, he added.
Any increase in FIMA transaction limits requires approval from the foreign exchange subcommittee of the Federal Open Market Committee.
Bessent's remarks came as the Trump administration presses the Fed not to raise interest rates. He has previously proposed expanding currency swap lines to more countries as a way to strengthen dollar dominance.
Steven Kamin, a former Fed division director now serving as a senior fellow at the American Enterprise Institute, said FIMA would also benefit the Fed if Japan is going to defend the yen anyway, because it would be preferable to large-scale Treasury sales.
Eric Wallerstein, chief macro strategist at Clocktower Group, said the Fed faces limited risk because FIMA is a short-term lending facility backed by Treasuries.
Tobin Marcus, an analyst at Wolfe Research, said the more striking issue was not the request itself but that the Treasury made it publicly.
