Goldman: Pushing Against The Wind

Goldman Sachs write “if we do see continued intervention operations, magnitudes of $20bn per day or more would be unusual. Based on historical FX intervention data published by the MoF, the largest single-day intervention to buy JPY and sell USD was ~$20bn in April 1998. There have generally been larger operations on days of intervention to weaken the JPY, with the largest single-day amount on record being ~$105bn in October 2011.”

• “The MoF probably has access to over $1tn of USD reserves to use in intervention operations, with ~10% held as deposits at foreign central banks and the BIS (i.e., not U.S. Tsys or MBS) as of August 31, 2022.”
• “But without an anticipated shift to the BoJ’s YCC policy, we continue to believe that successful intervention seems unlikely. Moreover, we think that the MoF’s objective is primarily to slow the rapid pace of JPY depreciation seen in recent weeks. and reduce speculative short positioning, rather than stop the currency from reaching weaker levels.”
• “We maintain our 3-month USD/JPY forecast of Y145 and still see risks as skewed to the upside, particularly after the FOMC meeting.”
• “That said, we have noted that the outlook for the JPY should look more constructive past the next 3 months under our baseline economic forecasts, and the latest intervention reinforces that view.”