- US Treasury chief indicates Fed lending backstop for foreign central banks was used on Friday
- Japan held $1.14 trillion in Treasuries at end of May, Treasury data shows
- Foreign central banks held nearly $3 trillion on deposit at New York Fed, latest data shows
Aug 2 (Reuters) - U.S. Treasury Secretary Scott Bessent said on Sunday he will not hesitate to repeat a U.S. and Japanese coordinated foreign exchange intervention that countered disorderly yen movements and urged that a Federal Reserve backstop for foreign central banks and monetary authorities be "upsized."
Bessent indicated in a social media posting on X that the Fed's Foreign and International Monetary Authorities lending facility was used in the coordinated action on Friday, which was confirmed by Japan's finance ministry and President Donald Trump.
"The FIMA Repo Facility is an important backstop. We should encourage it to be upsized in the coming months," Bessent said.
Created by the Fed during the COVID-19 pandemic crisis, the FIMA Repo Facility allows countries that keep Treasury securities on deposit at the New York Fed to get up to $60 billion in U.S. dollar loans for up to seven days. The loans are offered at a rate typically above the open-market repo rate, so the expectation is that its use would be limited to times of market stress.
Meeting Bessent's call to increase the facility's firepower would add another significant task to new Fed Chairman Kevin Warsh's growing to-do list, which includes reviews of the U.S. central bank's communications and balance sheet policies, combating persistent inflation and dealing with growing dissent among Fed policymakers as Trump calls for rate cuts.
FIMA was established by the Federal Open Market Committee — the Fed's rate-setting arm — and any changes to its lending parameters or structure would require the committee's approval. Fed policymakers are not expected to meet again until mid-September. Warsh could convene inter-meeting conference calls, though these events are typically only organized during financial crises.
As of the end of May, Treasury data shows Japan held $1.14 trillion of Treasuries, the most of any foreign nation and second only to the Fed itself. Tapping the FIMA facility might allow Japan to raise funds for yen purchases without having to sell its Treasury holdings outright. Selling Treasuries also could further push up bond yields that rose after the U.S. central bank held interest rates steady last week.
Foreign central banks and monetary authorities currently have just under $3 trillion on deposit at the New York Fed, with about $2.65 trillion of that amount in Treasuries, according to the latest Fed data.
BESSENT PRAISES DIRECTION OF TAKAICHI'S GOVERNMENT
The U.S. Treasury chief said the coordinated foreign exchange actions "countered disorderly yen movements" that pushed the currency to new 40-year lows against the dollar last week.
"We strongly support Japan's decisive market and monetary steps to correct the substantial undervaluation of the yen," Bessent said.
He added that the U.S. Treasury remains "attentive and in close communication" with its counterparts at the Bank of Japan and Japan's Ministry of Finance, adding: "We will not hesitate to participate in further joint intervention."
Bessent also lauded Japanese Prime Minister Sanae Takaichi's government, saying it is "moving into an exciting new phase of Abenomics, as nearly 15 years of powerful stimulus have created durable, robust underlying economic dynamics."
Abenomics refers to the economic policies launched by former Japanese Prime Minister Shinzo Abe in 2012 to end decades of deflation and economic stagnation.
Reporting by David Lawder and Daphne Psaledakis; Additional reporting by Dan Burns; Editing by Tom Hogue and Paul Simao
