Global FX Trader Eclipsed by Carry

Economics Research 14 August 2026 | 6:05PM BST

Our thoughts on USD, JPY, FX Vol, BRL & AUD Kamakshya Trivedi | n USD: Same story, different way. In what has become a familiar refrain, this week Goldman Sachs International in FX has been marked by low and falling vol—both realized and implied—with Michael Cahill returns generally marked by currencies’ carry prospects and beta to rising risk | Goldman Sachs International sentiment. While these low levels of volatility in the major crosses are historically rare and seldom last much longer than this, we have found that typically it Danny Suwanapruti | requires either a growth scare or meaningful shift in policy expectations to Goldman Sachs (Singapore) Pte change the regime (Exhibit 1). In that respect, this week‘s cooler inflation news Teresa Alves | seems to forecast another heat wave in this summer of carry; low volatility and Goldman Sachs International dispersed levels of rates are an undeniable recipe for carry to dictate total Karen Reichgott Fishman returns. This backdrop also dampens the likelihood of success for Japan’s | currency intervention, which has been the central focus point for currency Goldman Sachs & Co. LLC

markets over the last few weeks. We argued there was a tension between market Stuart Jenkins | pricing for imminent BoJ hikes and a stable Yen. So far, that tension is being Goldman Sachs International resolved on the FX side, with markets quickly resetting despite officials’ powerful Victor Engel action. We think that is largely due to this unfriendly backdrop for a low-yielding, | rates-sensitive, safe-haven currency like the Yen, in contrast to more effective Goldman Sachs International

interventions like in 2024 that coincided with a turn in macro conditions (more in Lexi Kanter | the JPY bullet). Goldman Sachs & Co. LLC

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Goldman Sachs Global FX Trader

Exhibit 1: FX volatility has fallen back to historical lows

30 1m FX Vol (EUR/USD, GBP/USD, USD/JPY) 30

Source: Goldman Sachs FICC and Equities, Goldman Sachs Global Investment Research

n JPY: Carry positioning diminished, not finished. Japan’s largest FX intervention in 15 years forced a sharp reduction in tactical Yen carry positions—even bigger than the initial unwind that followed the July 2024 operations—but the less Yen-positive macro backdrop likely in part explains why USD/JPY has already reversed nearly half of its initial decline (Exhibit 2). Despite the significant drop in speculative positioning, more unwinds can follow if the right conditions align, and positioning could even flip net long if the macro and market backdrop argues for a stronger Yen, as it did in July–August 2024. Recession risk is much lower today than in the summer of 2024, and a bullish shift in JPY sentiment often requires the emergence of growth concerns; that said, markets now view a September Bank of Japan hike as roughly 75% likely, and a faster pace of hikes could keep the Yen stronger for longer without a shift in the global growth backdrop. The true structural carry unwind, however, would be Japanese investor repatriation of unhedged foreign assets. Reports that the Japanese government wants to encourage pension funds and retail investors to shift back towards domestic assets have raised the prospect of such flows, but return prospects abroad still look more attractive and there are no signs yet of rotation in the official portfolio flow data. If none of the catalysts for Yen strength materialize, the impact of the intervention should further diminish, clearing the path for the Yen to weaken to fresh lows—just as it did in the aftermath of the April–May intervention earlier this year. The steady climb in USD/JPY since the intervention reflects the underlying depreciation pressures and the lingering skepticism that the domestic policy mix or broader macro backdrop can shift enough to sustainably support the Yen. Additional interventions can continue to buy time and wash out speculative positioning, but only for so long.