Goldman: Higher Levels But Less Underperformance

Goldman Sachs note that they “have been of the view that the MoF intervention back in September was intended to slow the pace of JPY depreciation but not stop it if fundamentals continued to support further weakness.”

• “So far, the lack of another large intervention operation as USD/JPY has drifted higher appears consistent with our view and the messaging from the MoF that the speed matters more than a particular level.”
• “Regardless, the initial intervention has been successful in reducing USD/JPY’s beta to the 10-year real rate differential, based on a 3-month rolling window of daily moves.”
• “We continue to believe that without a change in YCC USD/JPY should continue to grind higher as U.S. yields rise, and we expect to see further upside pressure in Fed terminal rate pricing after the latest data.”
• “However, the extent of further JPY weakness looks more limited from here as the risks to rates look more symmetric at current levels.”
• “Moreover, once rates stop moving higher in periods of risk-off, we expect to see the JPY resume its typical correlation with equity prices and appreciate in further episodes of broad Dollar strength.”
• “We are revising up our 3-month USD/JPY forecast to Y150 (vs. Y145 previously), but we maintain our longer-run forecasts of Y135 in 6 months and Y125 in 12 months.”