"Koteshi Sanae Trading" triggers a drop in the yen to 155. Wall Street warns that Japan's intervention "nuclear button" has not been activated yet.

Wall Street financial giants Goldman Sachs and Bank of America's latest research reports show that the immediate risk of intervention in the Japanese yen exchange rate is not high at present, emphasizing that even if the yen exchange rate accelerates its depreciation to the closely watched level of 155 yen per US dollar under the "Koshi Hayasanae trade" frenzy, the usual conditions for triggering foreign exchange intervention have not been met. Karen Reichgott Fishman, a senior strategist at Goldman Sachs, wrote in a report on Monday that the yen "does not seem to be at particularly weak levels." She stated that the recent poor performance is mainly driven by the re-pricing curve of Japanese fiscal risk premium and expectations of short-term interest rate changes by the Bank of Japan. Senior strategist Shusuke Yamada from Bank of America also holds almost the same view. He stated that without excessive volatility or significant accumulation of speculative positions, it is unlikely that the US dollar will rise above 155 yen and immediately trigger Japanese government intervention. In October, the yen depreciated by about 4% against the US dollar, becoming the worst performer among G-10 currencies. As selling pressure on the yen reappeared, the market is digesting the stance of the new Japanese Prime Minister Koshi Hayasanae, who is seen as inclined towards fiscal expansion and dovish monetary policy. Last week, the Bank of Japan maintained interest rates unchanged, with Governor Haruhiko Kuroda emphasizing that there is no risk of the Bank of Japan falling behind the curve, and after he provided almost no guidance on future rate hikes, the yen weakened further. After Koshi Hayasanae stated that her goal is to increase revenue without raising taxes, the yen exchange rate (US dollar to yen) further depreciated to 154.48 yen per dollar on Tuesday. At the age of 64, Koshi is a conservative nationalist who lists former British Prime Minister Margaret Thatcher as one of her role models. She has long been an ally of Japan's longest-serving Prime Minister Shinzo Abe, and a staunch follower of Abe's policies, which is why the current financial markets are betting on the resurgence of "Abenomics." The recent global phenomenon known as the "Koshi Hayasanae trade" refers to the anticipation in the financial markets of the restart of policies based on "Abenomics" after the election victory of the new leader of the Liberal Democratic Party, Koshi Hayasanae. The "Hayasanae trade" mainly involves the rapid rise of the Japanese stock market, continuous depreciation of the yen, and the re-initiation of "yen carry trade," prompting bets on the logic of "stronger fiscal stimulus, industrial support, and moderate monetary policy" for a potential resurgence of inflation in Japan - long Japanese stocks, short yen, and avoid long terms. The sharp depreciation of the yen recently has prompted verbal interventions from Japanese government officials. Finance Minister Kaori Katsuyuki stated last Friday that Japanese government authorities are closely monitoring the movement of the yen exchange rate with a sense of urgency, including those driven by speculative violent fluctuations. The last time the Japanese Ministry of Finance intervened in the foreign exchange market was in 2024 when it intervened in the continuous and sharp depreciation levels of around 157.99, 159.45, 160.17, and 161.76 yen per US dollar. Since then, the Japanese Ministry of Finance has been observing for over a year. Goldman Sachs expects that before having to sell long-term securities, the Japanese Ministry of Finance still has about $27 billion available for intervention, enabling it to match the scale of exchange rate intervention in 2022 and 2024. Goldman Sachs stated that when the US dollar reaches the depreciation range of 161-162 yen, the intervention risk will significantly increase. In the absence of significant increases in speculative positions or volatility, the US dollar against the yen "may test the level of 158 risks SINCERE, and only continue to break through to trigger significant policy responses," wrote Yamada from Bank of America in a report on Monday. He maintains his prediction for a relative depreciation of the US dollar against the yen by the end of the year at around 155 points, and added that the risk of overselling the yen to 160 may increase in the fourth quarter of 2025 after Koshi Hayasanae takes the helm. Looking at the longer term, Goldman Sachs predicts that as hedging costs decrease and the US dollar index weakens again due to the trajectory of the Federal Reserve's rate cuts, the yen will gradually appreciate. This trend may accelerate significantly if the US labor market data deteriorates. However, Japan's significantly larger-than-expected "Abenomics" -style massive fiscal stimulus measures - especially in the case of political pressure limiting the Bank of Japan's ability to tighten monetary policy, or if the US economy significantly outperforms other regions, may weaken Goldman Sachs' judgment on the appreciation of the yen.