Citi Sees Signs of Shift in Global Currency Policy

Citi Research says recent U.S.-Japan efforts to support the Japanese yen could signal an emerging shift in global currency policy, although it remains too early to compare the developments with the historic 1985 Plaza Accord.

In a research note, Citi said there is “no confirmation for the start of a structural turning point.” However, coordinated action between Washington and Tokyo to reverse persistent yen weakness may represent a meaningful change in how major economies approach currency imbalances.

In late July, the U.S. Treasury joined Japan in an intervention after USD/JPY approached a roughly 40-year high near ¥164 per dollar. Treasury Secretary Scott Bessent authorized the use of foreign-currency assets from the Exchange Stabilization Fund to purchase yen. The operation reportedly relied on existing ESF holdings, including euros, rather than credit provided to Japan.

Citi said stronger Japanese and Chinese currencies could potentially encourage European governments to participate in a broader currency framework. Such cooperation could eventually increase international pressure on China to prevent further yuan depreciation.

Still, Citi cautioned that reversing yen weakness may prove difficult. The currency’s decline has partly reflected yen-selling hedges associated with gains in Japan’s stock market, creating an obstacle for policymakers attempting to strengthen the currency. USD/JPY was recently trading around 160.04.

The intervention comes as Bessent promotes what Citi described as a new “national economic policy,” sometimes called the “Bessent doctrine.” Its five pillars include economic security, reciprocal free trade, rules for the next-generation economy, greater use of U.S. financial power and increased benefits for American workers.

While the strategy differs from Stephen Miran’s proposed Mar-a-Lago Accord, Citi said both approaches seek to address global economic imbalances, particularly the persistent U.S. current account deficit.

Citi stressed that the latest U.S.-Japan currency intervention does not necessarily represent a deliberate policy to weaken the U.S. dollar. Instead, a developing U.S.-Japan “mini-accord” could be aimed at limiting financial instability originating in Japan.

Over time, Citi believes the focus could shift toward China’s current account surplus and the yuan. If yen appreciation contributes to further CNY strength, European countries could eventually support a broader U.S.-Japan currency alliance targeting global trade and financial imbalances.