Goldman Sachs has stated that Japan possesses sufficient cash reserves to conduct additional rounds of yen-buying interventions similar to the historic operation carried out in July, which was supported by access to a Federal Reserve facility [1]. Of Japan's approximately $1 trillion in U.S. dollar reserves, Goldman estimates that about $200 billion is held in cash or cash equivalents, likely matching the scale of the July intervention [1]. Karen Fishman, a strategist at Goldman Sachs Research, emphasized that Japan has 'plenty of capacity to keep intervening if they wish,' and that access to the Fed's facility could theoretically make the entire $1 trillion available in liquid form [1].
The intervention in late July was a joint action with the U.S., marking the first such collaboration since 1998, and was prompted by the yen's slide toward 164 per dollar, its weakest level in four decades [1]. Goldman estimates that Tokyo deployed as much as $85 billion in the first two days of the operation, making it Japan's largest two-day intervention in currency markets outside of October 2011 [1]. Following the intervention, the yen strengthened past its 200-day moving average of 158 per dollar, but those gains have since faded, with the currency slipping back to near the 160 level and giving back about half of its post-intervention strength [1].
Despite the scale of the intervention, Fishman cautioned that such measures are 'not a sustainable fix' and ultimately only 'buy some time,' referencing previous solo interventions in April and May after which the yen returned to 40-year lows within months [1]. Japan's finance ministry has indicated plans to use the Fed's FIMA repo facility, allowing it to raise dollar cash against Treasury holdings without selling Treasuries on the secondary market [1].
The potential for a much larger intervention war chest has already influenced market sentiment, with clients becoming more bullish on the yen after the Fed facility made the full $1 trillion theoretically accessible for intervention, according to Praneet Shah, head of FX options trading at Goldman [1]. Options pricing indicates that traders remain wary of another sharp yen surge, as elevated premiums on short-dated yen calls suggest ongoing market caution [1].
CONCLUSION
Japan's substantial reserves and access to the Fed's facility provide it with significant capacity for further yen interventions, which has already impacted market sentiment. However, Goldman Sachs analysts warn that such interventions are only a temporary solution and do not address the underlying issues affecting the yen's value.