Odd Lots · Thursday, August 6, 2026
Brad Setser explains that the US Treasury's direct intervention capacity in the FX market is limited, primarily through the Exchange Stabilization Fund (ESF), which has around $20 billion in liquid FX. While coordinated action with Japan could provide more firepower, the Treasury alone lacks unlimited resources to cap the Yen.
“Secretary Bessent just has the ESF. Right now, the ESF has ballpark twenty billion in FX ballpark twenty billion in like liquid dollar cash, and then the special drawing rights, which it has like one hundred and sixty hundred and seventy billion of a lot but not unlimited. And using the special drawing rights is kind of even more out there than using FEMA repo. You know, it's sort of so you know, the Treasury on its own probably doesn't have the firepower.”
“Now you can argue that between the Treasury the MOTH, if Japan could through some magic change some of the pension funds operating guidance so that it started hedging its nine hundred and fifty billion dollar portfolio, there's more than enough firepower there collectively to set a target, sort of a yield curve control type target one p fifty probably be more like one sixty now, and thereby implement that so you know, whatever it takes, this is going to stay below one fifty or one sixty.”