Goldman Sachs: Near-Term Yen Intervention Risk Limited Despite USD/JPY Nearing 155

Goldman Sachs' View on Potential BOJ Intervention

Goldman Sachs believes the risk of near-term intervention by the Bank of Japan (BOJ) in the foreign exchange market is limited, even if the USD/JPY exchange rate approaches 155. Strategist Karen Reichgott Fishman wrote in a Monday note that the yen "does not appear to be at a particularly weak level." She attributed the recent yen underperformance primarily to a repricing of Japan’s fiscal risk premium and short-term BOJ rate expectations.

In Asian trading on Tuesday, the USD/JPY rate approached 154.5, retreating quickly after verbal interventions from officials, but remained above 154.

Factors Contributing to Yen Weakness

October saw the yen decline by about 4% against the dollar, making it the worst-performing major currency in the G-10. This decline was largely attributed to market expectations that Prime Minister Sanae Takaichi favors fiscal expansion and dovish monetary policy. The yen further weakened after the BOJ's recent decision to hold interest rates steady, with Governor Kazuo Ueda offering little guidance on future rate hikes and suggesting the bank does not see a risk of falling behind the curve.

Verbal Intervention and Past Actions

These developments have prompted verbal intervention from Japanese officials. Finance Minister Shunichi Suzuki stated on Tuesday that authorities are closely monitoring foreign exchange movements with a "high sense of urgency," noting that they have seen one-sided and rapid moves recently.

The last time the Ministry of Finance (MOF) intervened in the foreign exchange market was in 2024, at USD/JPY levels of around 157.99, 159.45, 160.17, and 161.76.

Financial Intervention Capacity

Goldman Sachs estimates that the MOF has about $270 billion available for intervention before having to sell longer-dated securities, giving it the capacity to conduct interventions of a similar scale to those seen in 2022 and 2024.

Potential Future Scenarios

Fishman suggests that if key U.S. data misses prevent markets from questioning its growth outlook, or if political focus shifts back to the possibility of an early election in Japan, the yen could weaken further.

In the longer term, Goldman Sachs anticipates the yen will gradually appreciate as hedging costs decline and the dollar weakens. This process could accelerate if U.S. labor market data deteriorates. However, larger-than-expected Japanese fiscal stimulus measures – particularly if seen as limiting the BOJ's tightening capacity – or a renewed outperformance of the U.S. economy could weaken this view.

Bank of America analyst Yamada wrote in a Monday note that USD/JPY "could test 158 before triggering a material policy response" in the absence of a significant increase in speculative positioning or volatility. He maintained his year-end forecast of 155 but added that the "risk of an overshoot to 160 in 2025 Q4 has risen."