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Treasury's Job, Not the Fed's: The Yen Defense
The Treasury Secretary wants the Fed to raise the cap on its idle foreign repo facility as Japan defends the yen. Critics say it would bypass financial limits.
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The Federal Reserve's facility for lending dollars to foreign central banks has sat idle for eight weeks. The Treasury Secretary went on television last week and suggested raising the cap on that window. The timing was not random. Washington and Tokyo had just intervened to prop up the yen.
The facility, a repo line for foreign central banks, was created in 2020 during the pandemic dollar shortage. It lends dollars against U.S. Treasuries. The line has been unused since early March, according to Fed data.
Japan holds more than $1 trillion in U.S. Treasuries, more than any other foreign government. The country is not short of dollar collateral. The dollars it needs to sell to support the yen are for exchange rate policy, not for liquidity needs, people familiar with the matter said.