The joint intervention by the US and Japan in the foreign exchange market has sparked concerns about the US dollar's reserve currency status, but Goldman Sachs argues these worries are unfounded.
The coordinated action to support the yen, the first of its kind in nearly three decades, has led some investors to fear that direct US backing of the Japanese currency could inadvertently weaken the dollar's position and undermine the appeal of US Treasuries as a reserve asset. In a recent report, Goldman Sachs strategists pushed back against this notion, stating bluntly, "We are skeptical of this argument," and labeling such concerns as an overreaction to the event's impact.
On the market front, the initial boost from the intervention has largely faded. The yen has slipped back to around 158.34 against the dollar this week, erasing nearly half of the gains made following the joint action.
Goldman Sachs: Intervention Logic Does Not Threaten the Dollar
Goldman Sachs notes that some investors' concerns are based on an inference that the US supported the yen to prevent Japan from selling US Treasuries, which could trigger bond market volatility. This, they argue, might imply the US would block other countries from selling Treasuries in the future.
"This seems like a significant leap," wrote strategist Michael Cahill and his team in the report. They contend that linking this intervention to the dollar's reserve status is a stretch of logic.
The bank specifically highlighted the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility. This tool allows foreign central banks to obtain dollar liquidity by using US Treasuries as collateral, without needing to sell them outright. Goldman Sachs believes this mechanism underscores the dollar's core strength: deep capital markets for reserve accumulation in normal times and liquidity support during periods of stress.
"We believe the US Treasury's actions and the availability and utility of the FIMA facility help demonstrate that no currency comes close to the dollar in terms of usability, network effects, and infrastructure," the strategists added.
Details of the Intervention Draw Scrutiny
The specific approach of the US-Japan joint intervention has also come under market scrutiny. To avoid disrupting the Treasury market, the operation was carried out by selling euros and buying yen, rather than directly using US Treasuries.
According to reports, the US did not notify the European Central Bank in advance of the action, only informing Frankfurt after the euros had been sold. This has raised questions about the transparency of the coordination mechanism.
Japan, as the largest foreign holder of the $31 trillion US Treasury market, has holdings that are a key variable. Goldman Sachs argues that the FIMA facility provides a safety net, meaning Japan is not forced to sell large amounts of Treasuries under exchange rate pressure, thereby reducing the risk of spillover effects on the bond market from the intervention.
Goldman Acknowledges Policy Uncertainty as a Lingering Risk
Despite downplaying the impact of this specific intervention, Goldman Sachs has not entirely dismissed the long-term risks to the dollar. The strategists concede that policy uncertainty could indeed weigh on the dollar's global role, a core reason for their bearish outlook on the dollar for 2025.
However, Goldman emphasizes that directly linking this macro concern to the US-Japan currency intervention is an overreach. The bank also notes that several countries have previously used their Treasury reserves to support their currencies during periods of exchange rate pressure without triggering opposition from Washington. In March, multiple countries sold significant amounts of Treasuries to prop up their currencies amid market stress signals.
"We believe that these forced selling events actually help to strengthen the dollar's role over time," the Goldman Sachs strategists wrote.
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