Seoul: U.S. Treasury Secretary Scott Bessent addressed concerns on Tuesday regarding the volatility of the South Korean won while emphasizing the critical role of a stable yen for regional economic stability. This statement follows the recent coordinated intervention by the United States and Japan aimed at bolstering the Japanese currency.
According to Yonhap News Agency, Bessent's comments came during an interview with CNBC after a rare joint intervention by Washington and Tokyo in the foreign exchange market last week. The move was intended to counteract the yen's sharp depreciation against the U.S. dollar. In the interview, Bessent highlighted the broader regional implications of a weakening yen, noting that its stabilization is vital not only for the U.S. but for the surrounding region as well, as significant depreciation could lead to a ripple effect on other currencies.
Bessent, drawing from his knowledge as an economic historian, linked the current currency fluctuations to past events, noting that the Asian financial crisis in the 1990s was partly due to a "overly weak" yen. His comments on the Korean won reflect U.S. apprehensions about its volatility, especially as this instability could potentially hinder South Korea's $350 billion investment commitment in the U.S., as per last year's trade agreement.
In January, Bessent had remarked on the Korean won's depreciation not aligning with Korea's strong economic fundamentals. This comment was perceived by analysts as an indirect intervention, aimed at mitigating concerns over the won's weakness affecting Korean businesses' U.S. investment projects.
During the CNBC interview, Bessent expressed optimism that appropriate policy measures in Japan would restore the yen to a "more normal equilibrium price" level. He emphasized the importance of a stable yen given Japan's significant trade flows, economic size, and its role in the global savings market. Bessent affirmed U.S. support for Japan's efforts to stabilize the region, highlighting the collaborative relationship between the two nations.
When questioned about the potential for further currency intervention, Bessent assured that Washington maintains "close" and "constant" communication with Tokyo, ready to take necessary actions to support Japan in ways that benefit the American economy and contribute to global economic stability.
Finally, addressing the topic of "carry trade," Bessent acknowledged its persistence, given Japan's large surplus of foreign assets, which continue to provide global liquidity. He cautioned, however, that an excessively low yen could trigger competitive devaluations, which he deemed detrimental to economic health.