Goldman: Negative Fundamentals Vs. Rising Intervention Risk

Goldman Sachs note that “USD/JPY continued to move higher over the past week, trading back above Y119 in Friday’s session. Wider rate differentials in the USD’s favor likely contributed to the rally, offsetting some further relief in Japan's adverse terms of trade shock, as commodity prices broadly declined. However, policymakers in Japan reportedly are growing uncomfortable with the extent of Yen depreciation, with the Finance Minister stating that “exchange rate stability is very important” and “we’ll carefully monitor the currency market and its impact on the Japanese economy.” At the same time, BoJ Governor Kuroda said last week that the net effect of exchange rate depredation on Japan's economy was more positive than negative. Our economists continue to see rising odds of verbal intervention as USD/JPY approaches Y120. Thus, while USD/JPY could remain at a high level and possibly increase a bit further - indicating upside risks to our existing 3-month target of Y117 - we think we may be nearing the limits of the recent move higher.”