Japan’s first sale of yen since 2004 to curb gains that threaten an export-led recovery is likely to succeed, according to Goldman Sachs Group Inc.
The “big splash” intervention, which was highly visible and quickly confirmed by the Finance Ministry, should help the currency weaken to 90 per dollar in a year, wrote Thomas Stolper, senior global markets economist at Goldman Sachs in London, in a research note to clients today. The yen may still appreciate over the next six months to a record 79 against the dollar, encouraging Japan to sell more of its currency, according to Stolper.
“Over the next six months the impact of the U.S. quantitative easing, persistent trade surpluses and the attraction of testing the authorities’ resolve to intervene again could result in marginal new lows below 79,” wrote Stolper, referring to the dollar versus the yen. “During that period more interventions are likely. The chances of the ‘big splash’ interventions eventually succeeding are quite high.”
The yen tumbled from a 15-year high versus the dollar, sliding the most in almost two years, after Japan’s Finance Minister Yoshihiko Noda said the nation unilaterally sold the currency.
The move came a day after Prime Minister Naoto Kan won re- election as head of the ruling party, beating a candidate who had insisted intervention was necessary. Traders speculated that Japanese banks in New York were buying dollars on behalf of the central bank to continue intervention.
The yen slid as much as 3.2 percent to 85.78 per dollar in the biggest intraday drop since October 2008. It earlier traded at 82.88, the strongest level since May 1995. The yen rallied to a record 79.75 in April 1995.
Estimates for Japan’s intervention in the currency market range from $1.2 billion, cited by the Nikkei newspaper, to the $20 billion forecast of BNP Paribas SA. Hidetoshi Yanagihara, a senior currency trader at Mizuho Financial Group Inc. in New York, estimated intervention of $10 billion, or about 856 billion yen.