FED COULD PLAY A ROLE IN SUPPORTING THE YEN AS MARKETS WATCH U.S.-JAPAN COOPERATION Written by Ammar Alimin (Market Analyst) Global financial markets are closely watching reports that the U.S. Federal Reserve (Fed) could play a supporting role in broader efforts by the United States and Japan to stabilise the Japanese yen, which has remained under pressure in recent months. The discussion follows reports that U.S. Treasury Secretary Scott Bessent is exploring measures that could help Japan strengthen its currency without creating unnecessary volatility in the U.S. Treasury market. Over the past few years, the Japanese yen has weakened significantly against the U.S. dollar, largely due to the wide interest rate differential between the two countries. Higher U.S. interest rates have encouraged investors to favour dollar-denominated assets, placing sustained pressure on the yen. Traditionally, when Japan intervenes to support its currency, authorities sell U.S. dollars and purchase Japanese yen in the foreign exchange market. However, such operations could require Japan to liquidate part of its holdings of U.S. Treasury securities to obtain dollar liquidity. Because Japan is one of the largest foreign holders of U.S. government bonds, large-scale Treasury sales could put pressure on the U.S. bond market, pushing Treasury yields higher and potentially affecting global financial conditions. To minimise this risk, policymakers are reportedly considering the use of existing liquidity facilities that would allow foreign central banks to obtain U.S. dollars by using their U.S. Treasury holdings as collateral, rather than selling them in the open market. If implemented, this approach would enable Japan to access U.S. dollar liquidity to support the yen while avoiding significant disruption to the U.S. Treasury market. Such a mechanism could help preserve stability in both the foreign exchange and fixed-income markets. Although no official policy changes have been announced, the discussions highlight that the stability of the Japanese yen has become an issue of broader international importance. Given the close connection between global bond markets, currencies, and capital flows, developments involving the yen are being closely monitored by investors worldwide. For market participants, the outcome of these discussions could influence the performance of USDJPY, U.S. Treasury yields, and overall market sentiment. Any closer coordination between U.S. and Japanese authorities may become an important factor shaping financial market expectations in the coming months. Overall, the possibility of the Federal Reserve becoming indirectly involved in efforts to support the yen reflects the increasingly interconnected nature of today's global financial system. While the proposal remains under discussion, investors will continue to monitor developments closely for any signs of policy coordination between the two countries. Disclaimer: This analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves the risk of capital loss.