Once again approaching the 160 red line! The Kaohsiung City Government signals support for interest rate hikes but still cannot save the yen; Goldman Sachs says all interventions are buying time with money.

Notably, despite reports that Prime Minister Kishida Fumio's government supports the Bank of Japan's interest rate hike, the yen remains "just a step away" from the critical level of 160 against the dollar. On Thursday, the yen traded steadily, hovering around 159.36 yen per dollar. In the past, once the yen approached the 160 mark, it often indicated that the government might intervene to support the exchange rate. According to informed sources, the next rate change is likely to occur in September or October. They added that the Bank of Japan's concerns about "the weak yen pushing up prices" are aligning with the government's demand to "strengthen the recent effects of US-Japan exchange rate intervention," with both sides sharing a consistent stance on the "need for a rate hike in the near future." Investors indicated that this news has minimal impact on the yen, as the market had already anticipated an interest rate increase from the Bank of Japan. Due to the significant interest rate differential with the U.S. and heavy debt burdens, the yen has been persistently weakening lately. Masayuki Nakajima, a senior strategist at Mizuho Bank, stated, "Thus, the market focus has shifted from 'will the Bank of Japan raise rates in September' to 'how rapid will the tightening pace be thereafter.'" Previous discussions regarding a rate hike by the Bank of Japan failed to sustain the yen's upward momentum. Meanwhile, on Thursday, the yield on Japan's 10-year government bonds was reported at 2.89%, not far from the 30-year high reached last month. The Prime Minister's Office stated in an email, "We believe that specific monetary policy measures, including interest rate hikes, should be decided by the Bank of Japan." Francesco Pesole, a strategist at ING, expressed that although he expects the yen to move toward the 160 level again, in the coming weeks, expectations of "loosened U.S. monetary policy" will support the yen. He said, "In my view, the current issue is that the market's outlook on the Federal Reserve still leans hawkish." Shusuke Yamada, head of foreign exchange and rates research at Bank of America, remarked, "After the coordinated intervention with the U.S. on July 31, the market's confidence in Japan's determination to 'defend the yen' has strengthened, yet the dollar-yen has rebounded without any intervention over the past week, suggesting that confidence may have faded." Karen Fishman, a senior forex strategist at Goldman Sachs, indicated that Japan has sufficient cash to conduct several rounds of yen-buying operations similar in scale to the joint U.S.-Japan intervention. Goldman Sachs estimated that the Japanese government used about $85 billion during the first two days of last month's action. This marked the largest two-day intervention in Japan's history, second only to the intervention done in October 2011 following the Fukushima disaster. The Japanese Ministry of Finance stated it would utilize the Federal Reserve's FIMA repo facility to borrow dollars against its holdings of U.S. Treasuries. Japan has approximately $1 trillion in foreign exchange reserves, of which about $200 billion is cash or cash equivalents. Fishman noted, "Realistically, they are far from exhausting this money, but I think this precisely illustrates that, as long as they are willing, they have enough ammunition for continued intervention." However, she cautioned that intervention is not a sustainable solution, as it "ultimately just buys time," pointing out that after Tokyo's separate intervention actions in April and May, the yen returned to a forty-year low within months.