A Japanese 10,000 yen banknote arranged in Kyoto, Japan, on Tuesday, July 14, 2026. The Japanese government’s push for pension funds and individuals to invest more in domestic markets is seen as a potential boost for the nation’s bonds and currency in the long term. Photographer: Kentaro Takahashi/Bloomberg via Getty Images
Kentaro Takahashi | Bloomberg | Getty Images
Japan has enough cash at its disposal for a couple more rounds of yen-buying on the scale of last month’s historic intervention, helped by access to a Federal Reserve facility, according to Goldman Sachs.
Of Japan’s roughly $1 trillion in U.S. dollar reserves, about $200 billion — likely the size of the July operation — sits in cash or cash equivalents, Goldman estimated.
“They already have at their disposal enough to do another couple rounds of what we just saw,” which were near record size, Karen Fishman, a Goldman Sachs Research strategist, said on the bank’s Exchanges podcast published late Wednesday U.S. time.
“Realistically, they wouldn’t come close to using all of that, but I think that just sort of hits home the point that they have plenty of capacity to keep intervening if they wish,” Fishman said. Access to the Fed’s facility would theoretically make that full trillion dollars available in liquid form, she added.
Japanese officials have said that they won’t hesitate to step back in if needed. That carries “some credibility,” Fishman said, now that the U.S. has intervened alongside Japan to support the yen for the first time since 1998. The two countries also acted in coordination with other Group of Seven nations to curb gains in the yen after the 2011 earthquake.
The joint action in late July came after the yen slid toward 164 per dollar, hovering near its weakest level in four decades, and has put the Bank of Japan’s September policy meeting at the center of whether that reprieve holds.
The Wall Street bank estimates Tokyo deployed as much as $85 billion in the first two days of last month’s operation, saying it was Japan’s biggest two-day foray into currency markets on record outside October 2011, when Tokyo intervened in the aftermath of the Fukushima disaster.
The yen had strengthened past its 200-day moving average of 158 per dollar following the intervention. But those gains are now fading: the currency slipped on Wednesday to near the key 160 level, giving back about half the strength from the intervention.
The intervention is “not a sustainable fix … ultimately just buys some time,” said Fishman, noting that after Japan’s solo action in April and May, the yen was back at 40-year lows within months.
U.S. Dollar versus Japanese yen
Japan’s finance ministry has said it plans to use the Fed’s FIMA repo facility, which lets central banks raise dollar cash against their Treasury holdings, sparing Tokyo from dumping Treasuries on the secondary market to fund intervention.
The prospect of a much bigger war chest has already shifted sentiment. Clients “really did get quite bulled up on the yen” last week once the Fed facility potentially put the full $1 trillion within reach for intervention, Praneet Shah, head of FX options trading at Goldman, said in the podcast.
Options pricing shows traders are still bracing for another sharp yen surge, and that fear itself may deter fresh selling. Shah said elevated premiums on short-dated yen calls point to a market still on guard for a sudden gap move, making investors wary of betting against the currency as it drifts back toward 160.
“If spot is trading up into 160, there’s a real risk that you don’t want to continue selling yen when you’ve got this large risk of a drawdown still priced by the market,” he said.
What may trigger another round
Whether Tokyo pulls the trigger again may hinge on the carry differential between Japanese and U.S. borrowing rates, which remains the overwhelming driver of the exchange rate, according to Shah.
The yield on 10-year U.S. Treasury stood at 4.690% late Wednesday, compared with 2.839% for 10-year Japanese government bonds, leaving investors with a substantial incentive for holding U.S. debt.
On the Japanese side, markets now price a 65% chance of a 25-basis-point Bank of Japan hike in September and about 40 basis points of tightening by year-end. “If they don’t deliver” a September hike, Fishman said, “that would put renewed downward pressure on the yen.”
The BOJ would need to hike faster than expected to shift the carry dynamics that have driven a 45% yen depreciation over five years, Shah said.
Any misses, the market will really start to increase expectations of a subsequent intervention.
Praneet Shah
Head of foreign exchange options trading
On the U.S. side, cooler economic data could ease pressure on the yen by weakening the case for the Federal Reserve to hike rates further, and revive bets on another intervention, Shah said.
Shah pointed to July 2024, when one of the most effective rounds of BOJ-MOF intervention landed on a U.S. CPI miss, compounded by a payrolls miss days later.
“Any misses, I think the market will really start to increase expectations of a subsequent intervention later this week,” he said.
Wednesday’s inflation report came in line with expectations. The consumer price index rose a seasonally adjusted 0.1% in July, matching consensus forecasts, while the annual rate eased to 3.4% from 3.5% in June. Treasury yields pulled back after the release.
