Goldman Sachs Warns of Potential USD/JPY Cap: Intervention Risks Loom
In a recent analysis, Goldman Sachs has shed light on the potential risks surrounding the Japanese yen's performance, particularly in relation to the USD/JPY exchange rate. The firm predicts that the yen's weakness will persist due to a combination of economic and political factors, including the snap election called by Prime Minister Takaichi.
The focus on Japan's alarming fiscal position is intensifying pressure on the yen, with the Takaichi trade gaining momentum. However, Goldman Sachs highlights a crucial point: the potential for intervention risks to limit the USD/JPY upside.
According to the report, the USD/JPY exchange rate is likely to fluctuate between 155 and 160 in the near term. This range reflects the increased likelihood of intervention, which could cap the yen's depreciation. The firm emphasizes that the odds of intervention are rising, and incoming data and election outcomes may further contribute to yen weakness.
Goldman Sachs also draws attention to the significance of 'rate checks' as potential precursors to intervention. These checks, conducted by the BOJ or MOF, are used to gauge market levels, but they have historically signaled the authorities' readiness to intervene. The last 'rate check' occurred in July 2024, just before the Tokyo authorities stepped in to buy up the currency. Similarly, the check on September 14, 2022, preceded actual intervention by a week.
Moreover, the firm warns of an additional risk: the BOJ's potential to intervene through policy means by hiking rates sooner than anticipated. This could occur if the yen's depreciation persists, necessitating a fundamental shift in monetary policy. As the yen's weakness continues, the question arises: will intervention or policy changes be the next step to stabilize the currency?
