Goldman Sachs argues that the Japanese yen currency will continue to stay weak amid the latest economic and political developments domestically. The snap election called by Japan prime minister Takaichi is one key driver dragging down the currency, as she looks odds on to consolidate power to pursue her fiscal expansion further.
The focus on Japan's weakening and alarming fiscal position is continuing to pile more pressure on the currency, with the Takaichi trade still in full swing. However, Goldman Sachs says that USD/JPY upside may be more limited considering intervention risks at play currently.
"Overall, we think USD/JPY over the near term looks likely to be in the range of 155-160, as the rising odds of intervention limit the upside, but incoming data and election risk look set to push towards further JPY weakness."
On potential intervention action, the firm notes that a "rate check" is the next key thing to look out for. This is a move done by either the BOJ or MOF in order to "gauge market levels" supposedly. However, we all know that it is a signal that they are very much prepared to step in.
And Goldman Sachs even points out how historically this has been a precedence before actual intervention. The last reported "rate check" was back in the middle of July 2024, just before Tokyo authorities stepped in to buy up the currency. And before that, the previous "rate check" was in 14 September 2022 and that was a week before actual intervention took place.
Besides intervention risks, the firm also notes that there is a risk that the BOJ could decide to intervene via policy means by hiking rates sooner than expected as well. That is if the Japanese yen currency depreciation continues to persist, needing a fundamental call for change.
