Goldman Sachs says a Fed facility floated by US Treasury Secretary Bessent would only smooth Japan's yen intervention, not remove the need for Japan to sell US Treasuries. The bank argues Tokyo's reserves are mostly illiquid, so intervention still means turning bonds into cash, with knock-on risk for USD/JPY.
Goldman Sachs argues that Japan will still have to sell US Treasuries to fund yen intervention, even if Tokyo taps a Fed borrowing facility that Treasury Secretary Bessent has floated as an alternative. That facility, the Foreign and International Monetary Authorities (FIMA) repo facility, lets foreign central banks lend their Treasury holdings for short periods instead of selling them outright.
FIMA buys time, not immunity
Bessent raised the FIMA option in remarks last week, saying the Fed's facilities are meant to protect the US economy and keep volatility offshore. Goldman's note, however, argues FIMA only buys time: according to Goldman Sachs, "while using FIMA buys time, it does not prevent Japan's sales of US Treasuries." It adds that eventually, Japan's Ministry of Finance will have to sell Treasuries or let enough securities roll off its balance sheet to fund intervention.
Japan's reserves are mostly illiquid
Japan holds roughly $1.2 trillion in foreign currency reserves, but over 80% of that sits in securities — primarily US Treasuries and other foreign government bonds — rather than liquid cash deposits. That means Tokyo cannot simply draw down cash to defend the yen; it has to convert bonds into cash first, which is the source of the pressure on the Treasury market.
If reserves were to run low, selling Treasuries could push US yields higher, acting as an indirect tailwind for the dollar — the opposite of what Tokyo wants from a lower USD/JPY.
Goldman adds that it does not read Bessent's push for Japan to use FIMA as an attempt to prevent Japan or other reserve managers from selling Treasuries. Instead, the bank frames it as a way to smooth the potential impacts of large-scale FX intervention on the Treasury market.
Source: InvestingLive
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