What the US-Japan Currency Intervention Means for the Yen, Rates, and the Dollar

What the US-Japan Currency Intervention Means for the Yen, Rates, and the Dollar – Goldman Sachs Exchanges

Market views

Bullish

JPY— Multiple structural factors support yen appreciation: 25% undervaluation on long-term basis, favorable yield differentials (JGBs now offer 100bps extra yield vs hedged US Treasuries), potential for Japanese investor repatriation, and coordinated US-Japan intervention signaling policy support. September BOJ rate hike expected with 65% probability.
EM— Higher-yielding EM currencies expected to continue outperforming against the dollar in a backdrop of constructive risk sentiment, low FX volatility, and conditions conducive to carry trades.

Bearish

USD— Dollar expected to weaken steadily as major pillars (gold, CNH, yen) all appreciate against it, driven by inflation dynamics and Fed reaction function. Modest dollar weakness expected against low-yielding currencies and continued weakness against higher-yielding EM.

Not investment advice.