Bessent presses the Fed to help defend the Japanese yen

Bessent calls for higher FIMA Repo limits

US Treasury Secretary Scott Bessent has publicly called on the Federal Reserve to significantly increase limits under the little-known FIMA Repo liquidity facility, which was created in 2020 during the pandemic crisis.

The tool was originally designed to ease a global shortage of dollars. It is now being used for a very different purpose: financing the defence of the yen by Japanese authorities.

Tokyo has announced plans to use the repo line to obtain the dollars needed to buy its own currency. The key point is that Japan holds more than $1.1tn in US Treasuries. If Tokyo used traditional intervention by selling those securities in the open market, it would push US bond prices lower and drive their yields sharply higher. That, in turn, would raise mortgage, auto-loan and corporate borrowing costs in the US.

USD/JPY daily chart, December 2025 – present

Source: CMC Markets, 6 August 2026

FIMA gives Japan dollars without selling Treasuries

Through FIMA Repo, the Bank of Japan can pledge its US Treasuries to the Federal Reserve and receive cash in return, without physically selling those assets.

Bessent wants the current $60bn borrowing limit per partner to be raised, which would give Japan an almost unlimited liquidity buffer. However, the move also creates important institutional tensions.

A public appeal from the head of the US Treasury to the Federal Reserve, made on X, is an early test of central-bank independence under new Fed chair Kevin Warsh. It forces the Fed to draw a line between independent monetary policy and the objectives of the US administration.

Ultimately, support from Washington is not merely a diplomatic gesture. It is a cold calculation aimed at protecting the US debt market from an uncontrolled rise in interest rates.

The cost for Japan may be very limited

How much would using the facility cost Japan? In practice, the mechanism is almost cost-free for Japan and certainly much cheaper than selling bonds outright.

The repo mechanism works like collateralised lending. Japan does not sell its US Treasuries, meaning it continues to receive interest on those bonds, for example at a yield of around 4.2% a year. In exchange for pledging the bonds as collateral, the Fed lends Japan dollars at the repo rate, which is close to the main Fed policy rate.

The real cost for the Bank of Japan is only the small spread between the borrowing rate from the Fed and the yield on the pledged securities. Often, that difference is only a fraction of a percentage point.

If Japan sold bonds in the market instead, it would crystallise heavy valuation losses, because bond prices have fallen in recent years, and it would damage the liquidity of its own portfolio. The effect is almost financial magic: Tokyo receives tens of billions of liquid dollars to buy yen at minimal cost, without triggering a crash in the US bond market.

Europe and Wall Street end mixed

European equity markets have regained some optimism after a long period of searching for direction, with investors still trying to push towards all-time highs. However, the previous session across the main European exchanges ended with mixed results.

The DAX and FTSE MIB finished below the line, while other leading indices posted only symbolic gains, ranging from 0.03% for the CAC 40 to 0.17% for Spain's IBEX 35.

On Wall Street, the Dow Jones recorded a third consecutive positive session, rising 0.49% and posting its third straight record close. The S&P 500 fell 0.17%, while the technology-heavy Nasdaq lost 0.83%.

Asian markets trade mixed

Asian equity markets have shown mixed sentiment for the past five weeks, and the current week has again failed to deliver a clear direction. Today's session also reflected a mixed tone after the weaker Wall Street close.

Japan's Nikkei was down 1%, while Australia's S&P/ASX 200 gained 0.4%. South Korea's KOSPI fell 4%. Elsewhere in the region, Hong Kong was down 1.8%, Shanghai lost 0.1%, India's Sensex gained 0.2%, and Singapore rose 0.75%.

Warsaw pauses after reaching a record

The WIG20 has reached the 4,000-point level and set a new record. However, after the strong opening, profit-taking emerged, similar to the pattern seen across European markets.

The WIG and WIG20 have continued to climb to record levels, extending the upward trend from July. Optimism remains visible on the Warsaw Stock Exchange, and the June decline in the WIG20 was halted near local support around 3,553 points, where a solid demand response emerged.

For now, fear remains hard to see, although uncertainty is appearing in European indices, the S&P 500 and the Nasdaq 100. The global risk-asset backdrop remains dynamic and tense. The biggest short-term problem for markets, and for Wall Street in particular, may not be the prospect of higher rates, but rapidly shrinking financial liquidity.

The US Treasury has reduced the scale of bond purchases by half. Combined with accelerating credit activity, this is draining capital from the system. Much will depend on the US bond market. A further rise in yields would increase concern about inflation and could ultimately lead to higher rates later in the year, raising corporate financing costs.

For now, investors are still largely ignoring that uncertainty. However, Warsaw is not isolated from the rest of the world, and if scepticism returns to global markets, a correction should also be considered.

Turnover across the broad market reached PLN2.48bn. The WIG lost 0.26%, blue chips fell 0.29%, and WIG20 futures declined 0.85%. Mid- and small-cap stocks also weakened, with the mWIG40 down 0.19% and the sWIG80 ending 0.09% lower.

The zloty tries to recover

The zloty, which has recently been under pressure, is trying to recover lost ground.

GBP/PLN is currently trading around zł5.01, while EUR/PLN is quoted at zł4.30.

USD/PLN is trading around zł3.72, CHF/PLN stands at zł4.61, and PLN/JPY is quoted at ¥42.33.