BlockBeats news: On September 10, Goldman Sachs said in its latest report that the yen has appreciated by more than 4% since early September, as the Bank of Japan’s policy shift has become more hawkish and market expectations of adjustments to asset allocation by Japan’s Government Pension Investment Fund (GPIF) have together pushed the FX market to reassess the yen’s medium-term outlook.

Goldman Sachs believes that if GPIF shifts some assets from overseas allocation to Japan’s domestic fixed-income market, the yen could see a structural appreciation. Based on its roughly $2 trillion in assets under management, a 5-percentage-point increase in domestic fixed-income allocation would, in theory, correspond to around $100 billion of sell orders in the USD/JPY market. The scale is roughly equivalent to half of Japan’s annual current account surplus, and it could also trigger the unwinding of previously accumulated yen carry trade positions.

This change will spill over into Asian currencies. Goldman Sachs’ review of data since 2022 says the won is the most sensitive to movements against the yen, with a beta of about 0.45; the Thai baht and the Malaysian ringgit follow, with the offshore yuan and the New Taiwan dollar also affected. The report pays particular attention to the won: after the dollar-to-won rate rises to around 1,350, South Korea’s policy signals suggest officials may be fairly comfortable with the current exchange-rate level. The National Pension Service’s halting of some foreign-exchange hedging and overseas-investment related FX-buying demand will slow the pace of further won appreciation.

In North Asia, Goldman Sachs continues to favor the New Taiwan dollar strengthening versus the renminbi, maintaining its view of being short the offshore renminbi against the New Taiwan dollar; in South Asia, it keeps a bearish view on the Philippine peso and a moderately bullish view on the Indian rupee versus the Philippine peso. Goldman believes that if the yen continues to strengthen, Asian currencies will see a new round of divergence, and the focus of the FX market will shift from the dollar’s one-way trend to whether the repatriation of Japanese funds can truly change regional capital flows.

It should be noted that the GPIF increasing its allocation to domestic Japanese bonds is still a Goldman scenario analysis, not an official decision that has already been implemented.