BlockBeats report: On September 10, Goldman Sachs stated in its latest report that the yen has appreciated more than 4% since early September, as a shift toward a more hawkish stance by the Bank of Japan and market expectations of asset allocation adjustments by Japan’s Government Pension Investment Fund (GPIF) are jointly prompting foreign exchange markets to reassess the yen’s medium-term trajectory.
Goldman Sachs believes that if the GPIF shifts a portion of its assets from overseas allocations to Japan’s domestic fixed-income market, the yen could experience a structural appreciation. Based on its approximately $2 trillion in assets under management, a 5-percentage-point increase in domestic fixed-income allocation would theoretically correspond to about $100 billion in USD/JPY sell pressure—roughly half of Japan’s annual current account surplus—and could also trigger the unwinding of previously accumulated yen-funded carry trades.
This change will spill over to Asian currencies. Goldman Sachs’ analysis of data since 2022 shows that the Korean won is most sensitive to movements in the Japanese yen, with a beta of approximately 0.45; the Thai baht and Malaysian ringgit follow, while offshore renminbi and the New Taiwan dollar will also be affected. The report particularly highlights the won: after the USD/KRW rate rose to around 1350, policy signals from Korea suggest authorities may be relatively comfortable with the current exchange rate level. The National Pension Service’s cessation of certain foreign exchange hedging and overseas investment-related foreign currency purchases will further slow the pace of won appreciation.
In North Asia, Goldman Sachs continues to favor the New Taiwan Dollar strengthening against the Renminbi and maintains a short position on offshore Renminbi against the New Taiwan Dollar; in South Asia, it maintains a bearish outlook on the Philippine Peso and a bullish stance on the Indian Rupee against the Philippine Peso. Goldman Sachs believes that if the Japanese Yen continues to strengthen, Asian currencies will enter a new phase of divergence, and the focus in foreign exchange markets will shift from the unilateral movement of the US Dollar to whether capital repatriation from Japan can genuinely alter regional capital flows.
It should be noted that GPIF's increased allocation to domestic Japanese bonds is still a scenario projection by Goldman Sachs and not an official, implemented decision.