Intervention alone won't be enough to pin down USD/JPY, says Goldman Sachs

Way to kick someone when they're down. As USD/JPY makes its way back up and threatens to take a look at the 160 level again, Goldman Sachs is out with a note arguing that intervention from Japan's ministry of finance alone will not be enough to keep a lid on the currency pair.

The firm points out several factors as being overwhelmingly negative for the yen currency, something that we've highlighted previously as well. As such, they are noting that the overall backdrop will keep USD/JPY underpinned unless a more hawkish BOJ comes into picture.

"The biggest headwind to JPY continues to be the broader backdrop of elevated oil prices, US growth outperformance, higher-for-longer rates, and constructive risk sentiment- each of which tend to push up USD/JPY. Currency-negative fundamentals likely explain what appears to be the smaller impact of intervention on USD/JPY per $bn over the two weeks since April 30 compared to the interventions in October 2022 and July 2024, when macro conditions were also pushing in the same direction.

Overall, we continue to be skeptical that intervention can be successful in driving USD/JPY sustainably lower without a shift towards greater recession concerns or much more hawkish BOJ."

Compounding the misery for the yen is this latest headline earlier this week.

A fresh round of debt will be another blow to investor confidence towards the Takaichi government, in a time when fiscal worries are already being driven up amid rising yields.

It also adds to more complications for the BOJ, not least with them needing to reconsider their tapering plans now. As mentioned earlier in the week:

"The central bank is under pressure to raise interest rates amid surging price pressures, but don't want to seem desperate in deciding on that just to defend a falling yen currency.

But at the same time, fiscal concerns and worsening economic conditions are two major pain points that the BOJ has to try and help balance out as well. So, they are put in a very tough spot.

I don't see how in any which way that the rout in the Japanese bond market will stop. There is a good chance that 10-year yields will look to 3% and that bodes very ill for the outlook of the yen currency - more so than it already is."