Besant’s “saving US Treasuries” means “abandoning the US dollar,” Citigroup: Strongly bullish on gold!

According to Fast Trading Desk, Citi’s forex research report released on August 19 highlights that the U.S. Treasury and the Japanese Ministry of Finance are forming an informal “currency union,” the main action being joint intervention in the forex market and buying yen. Foreign exchange strategist Osamu Takashima wrote that the first act of this U.S.-Japan “currency union” is the U.S. Treasury’s intervention to sell euro-yen (EURJPY).

The market message from this action is clear: the yen is gaining policy support, dollar strength is actively ceded, the euro-yen pair becomes a new trigger point for risk, and the duration structure of U.S. government bonds may also be extended. For investors, the pricing of exchange rates, bonds, and reserve assets all face recalibration.

Under this framework, gold is Citi's clearest bullish direction. With dollar credit being deliberately diluted by policy, reliance of the reserve system on a single sovereign currency decreases, and gold’s non-sovereign attribute is being revalued. Compared to the policy games surrounding the yen, euro, and U.S. Treasuries, the logic for gold is more straightforward.

U.S.–Japan joint purchases of yen: First round sees no market backlash

The report notes that after the most recent joint U.S.-Japan intervention, there was no immediate direct negative reaction in U.S. and Japanese bond and stock markets. This has increased both authorities’ confidence in continued yen purchases.

For Japan, maintaining the yen’s credit has risen to a national priority. Atsushi Mimura, Vice Minister for International Affairs at Japan’s Ministry of Finance, called this action a culmination of the U.S.-Japan “currency union.” Endorsement from U.S. Treasury Secretary Besant endows this exchange rate defense with even greater political authority.

The market did not quickly reject the first intervention, lowering the threshold for subsequent action. If the yen comes under renewed pressure, U.S. and Japanese authorities may well engage in further yen purchases.

“Ceding dollar strength” in exchange for U.S. debt and economic security framework

The core assessment is that Besant is bringing exchange rate policy into the framework of America’s national economic security strategy. The dollar is no longer just a passive reflection of interest rate spreads and growth expectations but is now a policy tool.

This framework is connected with Japan’s $550 billion strategic investment program in the U.S. According to the report, Japanese corporates, via special purpose vehicles established through the Japan Bank for International Cooperation and other institutions, will channel capital into U.S. projects. Cash flow will be shared 50/50 by both the U.S. and Japan before debt repayment ends, then shift to 90% U.S. and 10% Japan afterward.

This arrangement maintains some distance from the Mar-a-Lago Accord proposed by Stephen Miran but shares common ground: using FIMA facilities to intervene by selling dollars and encouraging official reserve holders to extend the duration of U.S. Treasury holdings.

This is the connection between “saving U.S. Treasuries” and “ceding the dollar.” If reserve countries are guided to lengthen U.S. Treasury duration, the structure of the U.S. bond market will be altered. In tandem, dollar strength is actively ceded to secure a more stable economic security alliance and financing terms, once again elevating volatility risk at the long end of the U.S. Treasury curve.

Gold becomes the biggest recipient of benefit

In asset terms, gold is listed as a “strong buy.” Its core logic is not short-term risk aversion, but revaluation of non-sovereign reserve assets amidst conscious dollar credit dilution.

If the dollar is pushed lower by policy, the long-term attractiveness of traditional dollar assets will be repriced. U.S. Treasuries need more duration buyers, and exchange rate policy serves broader economic security goals. In this environment, investors will focus more on assets not dependent on a single sovereign credit.

Gold sits at the center of this logic. While the yen is supported by intervention, the euro faces EURJPY intervention risk, U.S. Treasury volatility may increase, and the dollar is neutral or slightly weaker; by contrast, gold is capturing the main thread of reserve rebalancing and the ceding of dollar credit.

Citi’s conclusion is straightforward: Policy has confirmed the intent for proactive dollar devaluation, cementing and reinforcing the bullish logic for gold.

EURJPY becomes the surprise battleground, 185 to 186 is the key alert zone

This intervention is most notable in that the U.S. Treasury began with euro-yen. By selling EURJPY, the U.S. Treasury will alter the composition of foreign currency assets in its Exchange Stabilization Fund, which can also be interpreted as a short-term transfer from the overvalued euro to the undervalued yen.

The critical trigger range is 185 to 186 yen/euro. Last month’s U.S. intervention occurred when EURJPY bounced up to around 185. The authorities are clearly unwilling to tolerate further EURJPY appreciation.

The Japanese Ministry of Finance is also likely to follow up on EURJPY intervention. If intervention remains limited in scale, Europe may tolerate it. ECB President Christine Lagarde, during her time as IMF Chief, experienced the important role played by Japan’s Ministry of Finance during the European crisis of the 2010s, which could leave room for limited intervention.

But the main battleground remains USDJPY. If tensions escalate, U.S. and Japanese authorities may use FIMA facilities to buy yen, with an interim target to push EURJPY back below the recent lows of approximately 180 yen/euro.

TOPIX defines the intervention window; equity levels become a currency variable

A key reason for this year’s yen depreciation is that domestic and foreign investors used yen selling as a hedge as Japanese equities rose. The stronger Japanese stocks rally, the easier it is to extend yen-selling hedges, and the more digestible yen purchases become for the market.

Thus, the timing of intervention is highly related to Japanese equities. The most recent intervention occurred when TOPIX had just slipped below its 21-day moving average, but still held its 100-day moving average. This suggests short-term momentum is cooling, though risk assets have not seen a broad capitulation.

Should further intervention become necessary, similar technical conditions may again provide an opportunity. For investors, observing the yen means monitoring not just USDJPY and EURJPY, but also whether TOPIX re-enters this “sandwiched zone.”

The shadow of 1998 intensifies Besant’s motivation for pre-emptive action

The report cites Besant’s view that yen weakness was one of the reasons for the late-1990s Asian currency crisis. Preemptively preventing similar risks from recurring is a key reason for U.S. participation in coordinated intervention this time.

During the 1998 Japanese financial crisis, then-U.S. Treasury Secretary Robert Rubin refused to join coordinated action. Subsequently, the LTCM crisis triggered wild volatility, sending USDJPY from around 147 to near 108 in six months.

This history has heightened Besant’s policy alertness. The report speculates that Besant is very likely the main driver of this joint intervention. Trump, on the other hand, described the coordination as a “gesture of friendship” to Japan.

For Japan’s Kōichi government, this too is a signal from the U.S.: reflation policies must be reined in, and yen credit cannot be allowed out of control.

Next up, the market will watch three lines: yen, long bonds, gold

In the short term, the market will focus on two policy moments: the Jackson Hole Economic Symposium from August 27 to 29, and the G7, G20 finance ministers’ and central banker meetings in Asheville from August 31 to September 1. Citi notes closer attention will be paid to relevant statements from the U.S., Japan, and European authorities.

From a trading perspective, the watch list is short: Whether EURJPY tests the 185–186 range, whether USDJPY remains the main intervention battlefield, and whether TOPIX again dips below the 21-day moving average but holds the 100-day moving average.

The asset implications are clear. The yen is supported by U.S.–Japan coordination, the euro must be wary of EURJPY intervention risk, the dollar is neutral to weak, and long-end U.S. bond volatility risk is higher. Gold stands as the chief beneficiary of this policy framework.

With dollar strength intentionally ceded, U.S. Treasury duration reset, and exchange rate policy serving economic security aims, gold’s allocation value rises further. Citi’s “strongly bullish on gold” view is a concentrated reflection of this shift.

 

~~~~~~~~~~~~~~~~~~~~~~~~