Citigroup: The Japan-U.S. investment fund may prompt Japan to utilize its holdings of U.S. Treasury bonds, leading to a mini Mar-a-Lago agreement

Citigroup analysts pointed out that the $550 billion investment fund, as part of the tariff agreement between Japan and the United States, may significantly utilize Japan's $1.3 trillion foreign exchange reserves. U.S. Treasury bonds are a core component of Japan's foreign exchange reserves, and Citigroup analysts believe that Japan's use of these U.S. bonds could trigger a chain reaction, leading to an increase in long-term U.S. Treasury yields. This, in turn, may prompt the United States to pressure Japan to extend the maturity of its U.S. bonds. "We do not anticipate a significant shift in multilateral exchange rate policy that would result in something akin to the 'Mar-a-Lago Agreement,' but there is a possibility of reaching some form of bilateral 'mini Mar-a-Lago Agreement,'" Citigroup analysts Osamu Takashima and others noted in the report. "From the perspective of exchange rate policy, we believe there will be a continued tilt towards a weaker dollar and a stronger yen."