U.S. Treasury Secretary Yellen Urges Fed to Expand FIMA Tool or Intervene in Yen Stability Move Raises Eyebrows

August 4th. Recently, US Treasury Secretary Janet Yellen publicly called on the Federal Reserve to expand the scope of the Foreign and International Monetary Authority Repo Facility (FIMA Repo Facility), sparking market speculation on whether the Fed will more directly participate in stabilizing the Japanese yen.

It was reported that the US has previously supported the stability of the yen through the foreign exchange market, marking a rare direct intervention in exchange rate actions by the US. Yellen hopes that Japan can access dollar liquidity through the FIMA tool in the future, rather than selling US Treasuries to raise funds, in order to avoid selling off Treasuries and driving up yields.

Currently, Japan holds approximately $1.1 trillion in US Treasury bonds, and the market estimates that the scale of this yen intervention is around $60 to $80 billion. The FIMA tool allows foreign central banks to borrow dollars using US Treasuries as collateral, which can mitigate the impact of large-scale Treasury sales on the market.

However, Yellen's public request to adjust the Fed's tools is relatively rare. Former US Treasury official Mark Sobel stated that past Treasury Secretaries usually coordinate through private communication to bring about changes, rather than publicly demanding the Fed to alter its monetary tools.

The market is keeping an eye on the position of the new Fed Chair, Kevin Warsh. Warsh has previously expressed that the Fed can collaborate with the executive branch and Congress in the international financial arena, and maintains close communication with Yellen.

Analysts point out that expanding the FIMA tool may enhance foreign central banks' liquidity management of holding US Treasuries, while reducing the impact on the US Treasury market when countries like Japan intervene in exchange rates. However, this plan involves Fed authority and still requires approval from the Federal Open Market Committee (FOMC).

The core of this event is seen not only as a yen issue but also as the US Treasury openly advocating for adjustments to the Fed's policy tools, which could potentially affect the future boundaries of the relationship between the Treasury and the Fed.