Goldman Sachs Warns of USD/JPY Volatility: Intervention Risks Loom
The Japanese yen's weakness persists, fueled by domestic economic and political developments, according to Goldman Sachs. The snap election called by Prime Minister Takaichi is a significant factor, as she is likely to secure power and pursue further fiscal expansion. This focus on Japan's alarming fiscal position is putting additional pressure on the currency, with the Takaichi trade still active.
However, Goldman Sachs highlights a potential limitation to the USD/JPY's upside. The firm predicts a near-term range of 155-160 due to the rising intervention risks. These risks are further emphasized by the potential for a 'rate check,' a move by the BOJ or MOF to gauge market levels, which historically precedes actual intervention.
The last 'rate check' occurred in July 2024, just before Tokyo authorities intervened to buy up the currency. Similarly, the September 2022 'rate check' preceded intervention by a week. Additionally, there's a risk that the BOJ might hike rates sooner than expected, a policy intervention if the yen's depreciation persists.
Goldman Sachs's analysis underscores the complex interplay between economic policies, political decisions, and currency movements, urging investors to closely monitor these intervention risks for potential impact on the USD/JPY.
