The US bond buyback pledge that whipsawed markets this week is prompting comparisons with policies in Japan, where efforts to contain borrowing costs resulted in prolonged currency weakness. The dollar is trading at a three-month low and is on track for its worst week this month after the Treasury's surprise midweek announcement that it would double the amount of longer-dated bonds it can repurchase ahead of schedule.

Treasury officials said the expanded buyback program aims to improve liquidity in the $27 trillion Treasury market. However, investors worry the move signals concern about demand for long-term debt and could weaken the currency further, mirroring the Bank of Japan's yield-curve control experiment that suppressed yields but pressured the yen.

Strategists at Goldman Sachs and Morgan Stanley noted the parallel, warning that explicit or implicit yield caps tend to erode foreign investor confidence. The ICE Dollar Index fell 1.2% this week, the steepest drop since May, as traders repositioned for a more accommodative fiscal stance.

The Treasury plans to conduct buybacks of 20-year and 30-year bonds starting in September, with operations sized at $2 billion each. Officials emphasized the program is temporary and distinct from quantitative easing, but markets remain skeptical.