Yen rises above 156, is Japan intervening again? Goldman Sachs: Authorities have the ability to intervene 30 more times.

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The Japanese yen surged sharply during Monday's Asian session, with the market highly alert to whether Japanese authorities would intervene again. Goldman Sachs recently pointed out that Japan theoretically has the capacity to intervene in the forex market 30 more times at a similar scale to last week, but expects the authorities to prudently reserve ammunition and act opportunely.

In early Asian trading on Monday, the yen once rose 0.8% against the US dollar to 155.72, before giving up most of its gains. This round of volatility occurred during Japan's Golden Week holiday, when market liquidity was low, making it difficult for the market to determine whether a new round of intervention had taken place. In response, Japan’s Finance Minister Satsuki Katayama said she would not comment on whether there had been forex intervention, adding that there had been speculative movements in the market.

According to a Wallstreetcn article, Japanese authorities are suspected to have spent about 5.4 trillion yen (about 34.5 billion USD) last week to support the yen. This was the first such intervention since July 2024 and is one of the largest single interventions ever.

Goldman Sachs economist Yuriko Tanaka also estimated in a report that last week’s intervention was around 5 trillion yen (31.3 billion USD), triggered after the yen broke the 160 level against the dollar. She noted that this intervention took place in a relatively calm market environment, indicating authorities are treating 160 as a “defense line”. Based on Japan’s current forex reserves of about 1.2 trillion USD, policy makers could theoretically carry out 30 more rounds of interventions of similar size.

Low liquidity during Golden Week amplifies volatility, 157 becomes key level

David Forrester, senior strategist at Crédit Agricole, said that the low liquidity caused by the Golden Week holiday could amplify market volatility, and it is not yet clear whether there was a new round of intervention.

He also pointed out that 157 is a key level to watch—after the suspected intervention last week, the dollar/yen pair encountered resistance above 157 twice.

Bloomberg strategist Mark Cranfield also noted that Japanese authorities mainly intervened during the London-European trading session last week, and with a UK public holiday on Monday, the market's focus will shift to the New York session.

According to an analysis of Bank of Japan account data by Bloomberg, last week’s intervention was about 5.4 trillion yen (about 34.5 billion USD). Goldman Sachs estimated about 5 trillion yen (31.3 billion USD). By either measure, this was one of the largest single interventions in history.

According to a Wallstreetcn article, historical data shows that Japan conducted seven recorded forex interventions between 2022 and 2024, with the average size of the four interventions in 2024 being about 3.8 trillion yen each, making this intervention significantly above the average.

Goldman’s Yuriko Tanaka wrote in a report that this intervention occurred in a relatively low-volatility environment, different from previous interventions, and that this choice itself indicates authorities are defending the 160 level, rather than just reacting to speculative moves.

According to a Wallstreetcn article, Bloomberg columnists Gearoid Reidy and Daniel Moss also pointed out that in the past two months the yen has traded narrowly between 158 and 159 nearly every day, and the Finance Ministry’s combination of verbal warnings with occasional actual interventions has effectively dampened traders’ enthusiasm to short the yen. Although Japanese authorities have always denied having a specific target level, the market is well aware of this invisible red line.

Goldman Sachs: Ample ammunition, but authorities will act prudently

Yuriko Tanaka pointed out that as of the end of March, Japan held about 1.2 trillion USD in foreign exchange reserves, including 161.7 billion USD in forex deposits that can be used directly for intervention, with the remainder held as foreign securities. Based on last week’s intervention of about 5 trillion yen, Japan could theoretically intervene another 30 times.

However, Goldman Sachs also emphasized that it is unlikely the Finance Ministry would use most of its forex reserves for intervention. Yuriko Tanaka stated:

"Given the limited sources of intervention funds, we expect the Finance Ministry to seek to maximize the effect of each intervention and prudently choose the most effective moment, such as during rapid yen depreciation."

Goldman also pointed out that the likelihood and scale of future intervention will depend on multiple factors, including the pace of yen depreciation, market volatility, and the absolute exchange rate level.

This intervention is the first since July 2024, when the yen also fell below the 160 mark before sharply rebounding. High energy costs and market expectations that the US-Japan interest rate gap will not narrow soon continue to suppress the yen.

According to a Wallstreetcn article, prior to this intervention, Japanese Finance Minister Satsuki Katayama sent an unusual signal to reporters just before Golden Week: "Whether you go out or rest, always carry your smartphone with you." The intervention soon followed. Afterward, Japanese officials hinted that they were prepared to intervene again at any time during Golden Week.

As for the US stance, Tokyo once worried in the past about Washington's opposition to forex intervention, but the current situation has changed. According to reports, US Treasury Secretary Janet Yellen previously took the initiative to support the yen and indicated that if Japan requested, she would be willing to conduct joint yen purchases, and this stance is influencing Tokyo’s decision-making.

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