US-Japan Currency Alliance Unveiled Amid Yen Weakness Concerns
The United States and Japan have formed an informal 'currency alliance' through coordinated intervention in foreign exchange markets, according to Citi strategists. This arrangement links foreign-exchange policy with the countries' wider economic and national-security relationship.
Japan's Vice Finance Minister for International Affairs Atsushi Mimura described the latest intervention as the culmination of this alliance. The Citi research note emphasizes that this is not a monetary union, but rather policy coordination that may also support Japan's $550 billion U.S. investment program.
Citi believes Treasury Secretary Scott Bessent is concerned about prolonged yen weakness, which could recreate conditions seen before the Asian currency crisis in the late 1990s. President Donald Trump described the intervention as a 'signal of friendship', suggesting Washington supported the action.
The move may also send a warning to Japanese Prime Minister Sanae Takaichi, whose reflationary policies could place renewed downward pressure on the yen. Citi believes Washington wants Tokyo to moderate that stance. The bank drew a comparison with 1998, when the U.S. initially refused to participate in coordinated intervention as the yen weakened.
The latest action was unusual due to U.S. intervention to sell euros and buy yen. Citi views this as a temporary shift by the Treasury's Exchange Stabilization Fund from a historically expensive euro into an undervalued yen. Japan could take similar action if the euro rises toward ¥185 to ¥186, the bank said.