Goldman Sachs: If the Bank of Japan accelerates interest rate hikes, there is further room for unwinding yen carry trades.

Goldman Sachs stated that Japan's largest foreign exchange intervention in 15 years has led to a significant reduction in tactical yen arbitrage positions, exceeding the initial unwinding amount after the intervention in July 2024. However, strategist Karen Reichgott Fishman pointed out in the report that, as the macro backdrop supporting the yen remains weaker than in the summer of 2024, the USD/JPY has retraced half of its initial losses. Despite the substantial decrease in speculative positions, there is still the potential for further unwinding if conditions are right; if the macro and market environment supports a stronger yen, positions could even shift to a net long, similar to the situation from July to August 2024. The market currently anticipates a roughly 75% probability that the Bank of Japan will raise interest rates in September, with a faster tightening pace potentially allowing the yen to remain strong for a longer time, provided the global economic growth environment does not change.