GS MORNING 1 JPY Intervention Zoom Today 2 JPY Update 3 Thoughts From The Floor 4 FX Trader Bullets and 5 Week Ahead Previews

Highlights from GS Research, Sales, and Trading: 1) JPY & Intervention Zoom Today, 2) JPY Update, 3) Thoughts From The Floor, 4) Latest FX Trader and 5) Week Ahead Previews

1) JPY & Intervention – Zoom Today @ 13:00PM LDN

Quick Zoom today on JPY & Intervention. Whether this round, with US involvement, can change multi-year trend of JPY weakness.

Praneet Shah: Global Head of FX Options Trading

George Cole: Head of European Rates Strategy

Mike Cahill: Head of G10 FX Strategy

Meeting ID: | Passcode: 992479

2) FX OPTIONS TRADING (PRANEET SHAH) – Quick Bullets on JPY

BOTTOM LINE: Much larger than normal intervention sizes on Thursday (~$60bn vs ~$25bn on days in April/May intervention episode), and now co-ordinated action with US in EURJPY (EURJPY used to avoid signalling broader USD selloff,... which risks UST selling). New intervention style: no forewarning – catching market off guard, unrelated to realised vol and more level dependent. Flows more skewed to fading JPY strength via leveraged topside (166 line in sand). Surprisingly, little appetite to play for a continued move or buy optionality.

We have now broken 200d MA and both US/Japan side feel vested in maintaining JPY strength (they’ve gone ‘all in’ so wouldn’t fight it yet). Objective seems <158-160 USDJPY and JPY forward vol has traded lower to reflect this potential new tighter distribution . Short-term setup asymmetric for further moves lower in XJPY and likely more rounds of intervention this week if >158 (market still short JPY – especially CTAs and Japanese retail). We still haven’t ‘filled the gap’ to 147 from Oct25 (Takaichi election victory) – seems ambitious though, my target would eventually be 152/153. However, medium-term forces of repatriation are slow moving and backdrop is still one of loose monetary + fiscal in Japan which is bearish for JPY (unless they can move policy rates + actually realise inward FDI)

Depending on eventual reserve depletion, could potentially be storing up for a much larger future move weaker in JPY (less ammo to defend FX later). Separately – overall picture for broader USD now seems negative as $JPY has turned and EUR$ breaking tech levels higher (positioning also caught long USD). Warsh potential loss of inflation fighting credibility – twist steepening most bearish signal for USD (lower front-end nominals + higher inflation/ term premium).

CHART 1: 1m $JPY Vol has Bounced off the Lows from 6.0 to 8.8v