Yen Intervention May Fall Flat in Summer of Carry

Goldman Sachs is cautioning that Japan's currency intervention may not be effective this summer due to low volatility and dispersed interest rates. The bank notes that the current 'summer of carry' has led to a backdrop that favors carry trades over traditional safe-haven currencies like the Yen. This environment makes it challenging for the Bank of Japan (BoJ) to achieve its goals through currency intervention.

Goldman Sachs points out that there was initially tension between market expectations of imminent BoJ rate hikes and a stable Yen. However, this tension has been resolved on the FX side as markets have quickly adjusted despite officials' efforts. The bank attributes this to the unfriendly backdrop for low-yielding currencies like the Yen.

The 2024 currency intervention is often cited as an example of successful BoJ actions. However, Goldman Sachs notes that it coincided with a shift in macro conditions, which may not be present this time around.