Goldman Sachs: Closer To Historical Intervention Levels

Goldman Sachs note that “USD/JPY broke above Y126.00 this past week, prompting new comments from Japan Finance Minister Suzuki that sudden moves in the Yen were “very problematic” and a reiteration that the government is watching price action carefully. Despite repeated verbal intervention over the past few weeks from Japanese policymakers, USD/JPY has continued to rise alongside higher U.S. yields. With the cross now close to Y126.60, the lowest level at which the BoJ previously sold USD to purchase JPY, the odds of direct FX intervention are rising, in our view. We have said that the probability of intervention should increase significantly once USD/JPY enters the Y127-130 range, and we continue to hold that view). The real JPY TWI has also already fallen nearly 8% since March 3 and about 18% since the end of 2020, adding to the case for rising risk of intervention. As long as the BoJ resists any tweaks to the YCC thresholds and verbal pushback from Japanese officials remains the primary form of intervention, near-term USD/JPY topside could have a bit more room to run. At the same time, we continue to think that the currency's deep undervaluation, on top of the asymmetry created by possible intervention, mean Yen longs could be appropriate for long-horizon investors or market participants using FX structures for tail risk hedging.”