Citigroup has stated that Japan does not need to sell its more than $1.1 trillion holdings of US Treasuries to defend the yen, as alternative tools remain available even if its short-term bond positions are running low.

Strategists led by Jason Williams at Citigroup wrote in a report that Japanese authorities could tap into the Federal Reserve's "Foreign and International Monetary Authorities Repo Facility" (FIMA Repo Facility). This mechanism allows overseas central banks to use their US Treasury holdings as collateral to obtain dollar liquidity from the Fed, without needing to sell the bonds to raise cash.

Citigroup also noted that Japan could use $160 billion in deposits held at foreign central banks, most of which are likely with Fed-related institutions, or deploy euro-denominated assets to purchase yen. The strategy team led by Williams wrote: "These deposits have never been drawn upon in the past, so we believe they are purely emergency backup funds." They added: "Combining the above factors, we believe the risk of significant volatility in swap spreads is currently low."

Citigroup's assessment comes as the recent yen rally driven by a series of interventions has begun to wane, with investors evaluating whether the US and Japan will further coordinate currency market action and how such funding would be sourced. Confirming that Japan intervened to buy yen last Friday, Finance Minister Katsunobu Kato stated in a statement that Japan will continue to use the FIMA Repo Facility in the future.