Goldman Sachs Says Japan Has $1 Trillion War Chest: More Yen Interventions Coming?

Japan has enough dollar reserves left to intervene in currency markets again, according to Goldman Sachs. The bank estimates Tokyo holds close to $1 trillion in reserves. About $200 billion of that sits in cash or cash equivalents.

That cushion matters because the yen has already given back much of last month’s gains. The currency slipped back toward 160 per dollar this week, erasing about half its post-intervention rebound.

Why Goldman Sees Room to Act Again

Goldman Sachs strategist Karen Fishman discussed this on the bank’s Exchanges podcast. She said Japan would not need most of that pool to match July’s operation.

She also pointed to the Federal Reserve‘s FIMA repo facility, which lets central banks borrow dollars against Treasury holdings. That access could make the full $1 trillion available and spare Japan from selling bonds on the open market.

That backstop already shifted trader sentiment last week. Once clients saw the facility could unlock the full reserve pool, they grew more confident on the yen. Praneet Shah, Goldman’s head of foreign exchange options trading, made the point on the podcast.

The Rate Gap Behind the Yen’s Slide

The real driver, according to Shah, is the gap between Japanese and U.S. borrowing costs. Ten-year Treasury yields sat near 4.69% this week. Ten-year Japanese government bonds yielded just 2.839%, keeping capital flowing toward U.S. debt.

Markets currently price a 65% chance the Bank of Japan raises rates by a quarter point in September. Fishman said a miss on that hike would renew pressure on the yen. A softer U.S. inflation or jobs print, however, could ease that pressure and revive bets on another intervention, Shah said.

“If they don’t deliver… that would put renewed downward pressure on the yen.”

Karen Fishman, Goldman Sachs Research

Tokyo and Washington split the July operation, marking the first joint U.S.-Japan yen defense since 1998. It followed the yen’s slide toward 164 per dollar, its weakest level in four decades.

Tokyo deployed roughly $85 billion in the operation’s first two days. Goldman calls that Japan’s largest two-day intervention outside the aftermath of the 2011 Fukushima disaster.

Fishman noted that after Japan acted alone in April and May, the yen still returned to 40-year lows within months. Options markets still price elevated premiums on short-dated yen calls. That signals investors remain wary of betting against a rebound, Shah said.

Tokyo’s next move now hinges less on the size of its reserves. Instead, it depends more on what the Fed and the Bank of Japan do next.