Goldman Sees No Threat to Dollar Dominance from US-Japan Yen Support

The US dollar's status as the world's most dominant reserve currency is unlikely to be threatened by Washington's support for Japan's efforts to prop up the yen, according to Goldman Sachs Group Inc.

Last month's joint currency intervention raised concerns that direct US support for the yen could weaken the dollar and dent the appeal of US bonds as reserve assets. However, Goldman strategists say this assumption is a 'quite a leap.'

The bank points out that Japan has access to the Federal Reserve's Foreign and International Monetary Authorities (Fima) Repo Facility, which allows foreign central banks to raise dollars against their Treasuries without selling them.

This highlights a key advantage of the dollar: deep capital markets for building reserves in normal times and access to liquidity during periods of stress. Goldman strategists believe that Treasury's actions and the availability of the Fima facility demonstrate that no other currency can compete with the US dollar's usefulness, network effects, and supporting infrastructure.

The joint campaign by Washington and Tokyo to shore up the yen is a rare occurrence, happening only once in almost three decades. Some investors have raised concerns about direct US support for the yen, but Goldman sees no significant risks to the dollar's dominance.