Yen Strengthens as Japanese Policy Shifts Towards Domestic Assets

The Japanese yen has been on a rollercoaster ride for years, repeatedly staging false dawns only to be pulled back down by factors such as low interest rates, capital outflows, and resilient US growth. However, Goldman Sachs' Kamakshya Trivedi believes that the latest move deserves more respect, suggesting that if a durable yen recovery is beginning, it would look like this.

The yen has strengthened by about 3% over just two trading days, aided by the apparent September 2 rate check and the renewed threat of intervention. However, the more significant development is that Japanese policy is no longer leaning entirely against the currency. Governor Kazuo Ueda has validated expectations for a September Bank of Japan rate hike, while speculation is building that the Government Pension Investment Fund could adjust its allocation targets in favour of domestic assets.

This would matter because Japan's currency problem has never been solely about speculators leaning on the yen; it also reflects the steady export of Japanese savings into foreign bonds and equities. Intervention can clear out the weeds, but a genuine rotation of domestic capital would begin changing the soil.