Besson successfully "raided" the yen, but why is he unable to tame US Treasuries?

The recent contrasting outcomes in the yen and U.S. Treasury markets under U.S. Treasury Secretary Scott Bessent reveal an important market principle: governments can impact the speed at which prices deviate from equilibrium, but they can hardly determine the equilibrium price itself. While Bessent’s public statements once drove a sharp rebound in the yen, his policy tools appeared relatively limited when facing persistently rising long-term U.S. Treasury yields.

The disparity firstly results from differences in market structure. The yen market, in essence, is a policy-driven game. Recent rare coordination between the U.S. and Japan over exchange rates has seen Japan intervene in the forex market with close to $100 billion, while the U.S. provided policy support. Meanwhile, Bessent frequently suggested he has deep insights into the Bank of Japan’s policy path, signaling to the market that further rate hikes or continued forex interventions by Japan are likely. This "information advantage," coupled with policy coordination, makes yen short-sellers face dual risks, triggering some to cover their shorts.

However, the yen's rebound is more about influencing market expectations than reversing the trend. The key factor determining the long-term direction of USD/JPY remains the U.S.-Japan interest rate differential. As long as U.S. rates markedly exceed Japanese rates, the incentive to allocate capital to dollar assets remains. Therefore, after each intervention, yen shorts tend to rebuild positions, showing policy can slow depreciation but finds it hard to alter the long-run equilibrium.

In contrast, the U.S. long-term Treasury market faces a completely different set of constraints. Bessent is not battling speculative capital, but competing with the global bond market’s pricing mechanism. Though the Treasury recently expanded long-term bond buybacks, the market was unimpressed, and 10-year yields continued rising. This reflects investors’ belief that buybacks merely improve liquidity without changing the supply-demand balance. For a U.S. Treasury market exceeding $30 trillion, buybacks in the billions are almost negligible.

More critically, rising long-term yields are driven by a series of structural factors, such as a continually expanding fiscal deficit, growing Treasury supply, climbing corporate financing needs, and inflation concerns sparked by higher energy prices. These factors jointly push up term premium, and the Treasury can neither control inflation expectations nor alter the market’s view regarding U.S. fiscal sustainability. Even Bessent admits his aim is simply to guide the market back to equilibrium, not change the equilibrium price itself.

Recently, a series of moves by U.S. Treasury Secretary Scott Bessent in the yen and U.S. Treasury markets have triggered a real and intriguing question for investors: if he can drive a strong rebound in the yen through public statements and policy coordination, why does he appear ineffective in the face of surging long-term U.S. Treasury yields? The answer lies in the fundamentally different operating logic, participant structure, and pricing mechanisms behind these two financial markets. Ultimately, while Bessent can act as an influential player in the FX market, he cannot become a dominant price-setter in the long-term Treasury market.

From a results perspective, Bessent’s recent comments on the yen have indeed been effective. After his public remarks, the USD/JPY exchange rate quickly fell, driving the yen to months-high levels. The market isn’t so sensitive because investors believe the U.S. Treasury Secretary can dictate the yen exchange rate, but because he represents an executable policy alliance. On the yen issue, the U.S. and Japan are not working against each other but rather have formed a rare coordinated framework. Previously, Japan's government intervened in the forex market with close to $100 billion, with the U.S. supporting on the policy front. In FX markets, this coordination itself poses a formidable deterrent force.

More importantly, Bessent signaled an “information advantage” to the market. When he claimed to have “fairly good knowledge” of the Bank of Japan's and policy-makers’ next steps, he was essentially telling the market that shorting the yen isn’t just a bet on interest differentials but could also face policy-surprise risk. For highly leveraged arbitrage trades, this risk is deadly—if the Bank of Japan tightens more, or the government again intervenes in force, shorts could lose on both rates and FX. From a game theory perspective, Bessent is raising opponents’ uncertainty costs, forcing some speculative funds to retreat.

This is one of the biggest distinctions between FX and bond markets. In FX, marginal price-setters are often hedge funds, CTAs, and other leveraged traders, whose position concentration is high and who react acutely to policy signals. Frequently, even official “jawboning” acts as intervention; when traders believe the government might act, they close positions early, amplifying the policy impact. That's why the FX market often moves on “expectation before action.”

Still, Bessent’s influence over the yen is limited. Previous rounds of yen interventions have all proven the same rule: the government can alter the market's pace, but it's hard to change direction. The decisive force keeping USD/JPY high remains the rate differential. As long as U.S. rates are much higher than Japan’s, capital will continuously flow into dollar assets and carry trades remain attractive. In fact, soon after the last big Japanese intervention, international funds began rebuilding yen shorts. Even with coordination and information advantage, Bessent is more able to sway sentiment than the long-term equilibrium price.

These limits are even more evident in the long-term U.S. bond market. If the yen market is a game between policy and speculative capital, the long-term Treasury market is a continual global investor vote on U.S. economic, fiscal, and inflation prospects. There isn’t a targetable opponent, nor can big one-way positions be changed by policy threats.

Recently, the U.S. Treasury announced an expansion of 10- to 20-year bond buybacks, seeking to signal stabilized long-end yields. Yet the market remained unenthusiastic. Investors expected larger moves; after the announcement, 10-year yields actually climbed, reaching near multi-year highs. This shows that the market now sees buybacks as mere liquidity fixes, unable to balance bond supply and demand. For the over $30 trillion Treasury market, tens of billions in buybacks have near-zero effect.

Indeed, Bessent himself has publicly acknowledged this reality. He stated he doesn’t expect to change the market equilibrium price, only to help prices revert to equilibrium. This message reveals an important point: the U.S. Treasury recognizes the limits of its influence. It can adjust issuance structure, do buybacks, and manage expectations through communication, but cannot dictate where long-term rates settle. These ultimately reflect global investors’ judgments on growth, inflation, fiscal deficits, and debt sustainability—matters of market power, not administrative fiat.

Even more crucially, pressures now facing the long-term Treasury market are clearly structural. Persistently expanding U.S. fiscal deficits mean high Treasury supply; increasing corporate borrowing pushes rates higher overall; renewed energy price rises deepen concerns over sticky inflation. Against this backdrop, investors naturally demand higher term premiums to hold long bonds. In other words, it’s macro fundamentals—not market sentiment—driving yields ever higher.

Meanwhile, an ironic phenomenon is emerging. To support the yen, Japan must sell overseas assets for cash, much of those being U.S. Treasuries. In other words, the U.S. supports Japanese FX stability while Japan enacts its policy by selling Treasuries to stabilize the yen. This means that while helping the yen, Bessent is indirectly adding supply pressure to the Treasury market. From a global capital flow perspective, there’s even a built-in tension between the two policies.

That’s why Bessent’s roles are completely different in the two markets. In the yen market, he has a coordination advantage and can team up with the Japanese government and Bank of Japan against speculative capital. In the U.S. Treasury market, he’s just one among countless participants, facing the collective pricing power of global central banks, sovereign wealth funds, insurers, pension funds, and asset managers. The former is a tactical contest; the latter is a strategic global vote on U.S. credit and fiscal outlook.

This explains why more on Wall Street discuss aggressive options: slashing long-term bond issuance outright. Deutsche Bank, Morgan Stanley, and Citi all argue that if Treasury really wants to lower long-end yields, buybacks alone fall far short—instead, cutting 20- and 30-year supply and boosting short-term debt might work better in theory and last longer, as it shifts the debt structure rather than relies on direct price intervention.

For investors, Bessent’s recent experience demonstrates an important rule. FX is shaped by policy coordination and expectation management, so governments can shift price trends in the short-term. The bond market, in contrast, is ultimately determined by macro variables like fiscal policy, inflation, and growth. Administrative actions can affect volatility, not reverse the trend. In this sense, the yen issue is a game, while the U.S. Treasury issue is an equilibrium problem. Bessent can shift expectations about the path ahead, but cannot alone change the market’s judgment on America’s long-term fiscal reality.

Therefore, we believe the key variables driving long-term U.S. rates will remain the fiscal deficit, inflation path, and Treasury supply structure—not buybacks per se. Until there is genuine improvement in these areas, higher long-end yields are likely to persist. Bessent can impact sentiment and help relieve imbalances, but cannot overpower equilibrium prices set by global capital. This is the real reason he can move the yen, but struggles to tame long-term Treasury yields.