Episode summary
What the US-Japan Currency Intervention Means for the Yen, Rates, and the Dollar
Exchanges (Goldman Sachs)
· · 29 min · Guests: Karen Fishman, Praneet Shah
Summary
The episode centers on the coordinated U.S.-Japan currency intervention that helped halt a sharp yen selloff and sent the dollar/yen pair lower by several percent. Karen Fishman says Japan’s action was its biggest FX intervention in 15 years and may have totaled up to $85 billion over July 30 and July 31, with the U.S. role smaller but symbolically important.
The discussion argues that the yen’s weakness has been driven by Japan’s mix of gradual BOJ tightening, big spending plans, and a low-volatility global backdrop that encouraged carry trades. Praneet Shah says the market was caught off guard, with heavy position cutting after the yen broke key technical levels and the intervention triggered unusually large trading volumes.
Both guests say intervention can stabilize the currency but not fix the underlying problem on its own. Karen says durable yen strength would require follow-through from the BOJ, potentially a September hike, and possibly a shift that draws Japanese investors back toward domestic assets. On the dollar, both see no major threat to reserve-currency status, though they expect modest dollar strength versus low-yielders like the yen and euro and continued dollar weakness against higher-yielding EM currencies.
Key takeaways
- Karen Fishman says Japan’s intervention was its largest in 15 years and may have reached up to $85 billion over July 30 and July 31.
- The U.S. role was smaller than Japan’s and looked mainly symbolic, aimed at supporting market functioning rather than targeting a specific yen level.
- Praneet Shah says the intervention shocked traders, triggered position cutting, and pushed yen positioning to one of its largest reductions in 20 years.
- Both guests say intervention can buy time, but without follow-through from the BOJ or a broader policy shift, yen weakness tends to reemerge.
- Praneet Shah says the September BOJ meeting and U.S. inflation data are the key near-term catalysts for another possible intervention.
- Karen Fishman says the yen remains undervalued on their models, and a shift by Japanese investors back to domestic assets could support a more durable rally.
Notable quotes
“they sold US dollars to buy Japanese yen in an effort to halt the weakening that we've seen over much of the past year”
“it was all done in a very short space of time, which is very unusual compared to past episodes of intervention”
“it stabilized the exchange rate rather than fully reversing the structural weakness”
“It ultimately just buys some time”
How the episode opens
The United States and Japan have coordinated the largest currency market intervention in 15 years to help stabilize the yen. After more than five years of yen weakness, it s left investors asking the question: why now? I'm Allison Nathan, and this is Goldman Sachs Exchanges.
To understand the why and the knock-on effects for currency markets, I'm sitting down with my colleague in Goldman Sachs Research, Karen Fishman, and Praneet Shah, who leads foreign exchange options trading within our Global Banking & Markets business. Praneet is joining me from London, and Karen is here with me in the studio. Karen, Praneet, welcome to the program.
Thanks for having me. Thanks, Allison Karen, let's first level set for the generalist. Talk us through what happened and why this is a big deal.
Yeah. So, on July 30th, Japan conducted or began its biggest intervention in the FX market in 15 years. So, they sold US dollars to buy Japanese yen in an effort to halt the weakening that we've seen over much of the past year, but especially over the past few months when the yen hit 40-year lows versus the US dollar.
And this was a big deal for both its size and its scope. So in terms of the size, we won't have the official numbers for another month, but we can use indirect data to get a broad sense of how big it was, so things like interdealer trading volumes and BOJ data. And so there are a number of figures floating out there, but we've estimated over the first couple of days, so July 30th through July 31st, that it probably amounted to up to $85 billion, and maybe there was a bit more done on August 3rd as well, since volumes were elevated that day too.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us-japan currency intervention
- yen undervaluation
- interest rates volatility
- dollar outlook
- fx options
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “What the US-Japan Currency Intervention Means for the Yen, Rates, and the Dollar” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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