Dollar Dominance Reaffirmed as US-Japan Intervention Highlights Advantage

The US Treasury's recent intervention in Japan's currency market has sparked concerns about the dollar's dominance. However, Goldman Sachs analysts argue that this move highlights one of the dollar's biggest advantages: central banks can easily access their dollar reserves when markets get rough.

The concern is that Washington's more hands-on approach to the Treasury market could make reserve managers less comfortable holding dollar assets. But Goldman says this concern is misplaced in Japan's case, pointing out that the assumption that the Treasury's willingness to help Japan sell Treasurys today means it could be willing to stand in the way of another reserve manager trying to sell in the future 'seems like quite a leap.'

The US and Japan have stepped up efforts to support the yen, which was trading around 158 against the dollar late Thursday, compared with roughly 164 before the intervention last week. The coordinated intervention followed months of yen weakness that pushed the currency to a 40-year low.