U.S. Treasury Secretary Urges Wider Use of Fed's FIMA Repo Facility as Yen Volatility Draws Scrutiny

Aug. 4 — U.S. Treasury Secretary Scott Bessent has urged the Federal Reserve to broaden the use of its Foreign and International Monetary Authorities (FIMA) Repo Facility, stoking speculation that the Fed could become more directly intertwined with Japan's efforts to steady the yen. Reports say the United States has previously backed yen stability via foreign-exchange markets, a rare case of direct U.S. involvement in currency intervention. Bessent is encouraging Japan to tap dollar liquidity through the FIMA facility instead of selling U.S. Treasury holdings, aiming to avoid upward pressure on U.S. yields that could result from large Treasury sales. Japan holds about $1.1 trillion in U.S. Treasuries. Market estimates put the size of the latest yen-support operations at roughly $60 billion to $80 billion. The FIMA facility allows foreign central banks to borrow U.S. dollars against Treasury collateral, helping reduce market disruption from large-scale Treasury selling. Bessent's public push to adjust a Federal Reserve tool is unusual. Former Treasury official Mark Sobel noted that prior Treasury secretaries typically handled such coordination through private channels rather than publicly pressing for changes to monetary-policy instruments. Attention is also on new Fed Chair Kevin Warsh. Warsh has said the Fed can work with the executive branch and Congress on international financial matters, and he can keep close lines of communication with Bessent. Analysts say expanding FIMA could give foreign central banks more flexibility to raise liquidity from their Treasury holdings while limiting spillovers to the U.S. Treasury market from currency interventions by countries such as Japan. Any change would fall under the Fed's authority and would still require approval by the Federal Open Market Committee (FOMC). Market participants see the broader issue as the Treasury Department's public advocacy for changes to Fed policy tools, a development that could influence how the boundary between Treasury and the Fed is defined going forward.