Goldman Sachs refutes market concerns: US support for Japan’s foreign exchange intervention does not undermine the dollar’s dominance; FIMA tool demonstrates the depth and resilience of the dollar system

According to Zhihui Finance APP, Goldman Sachs stated that U.S. support for Japan’s efforts to stabilize the yen is unlikely to undermine the U.S. dollar’s status as the world’s primary reserve currency.

Japan is the largest foreign investor in the $31 trillion U.S. Treasury market. Last month’s joint currency intervention raised some concerns that U.S. support for the yen—potentially aimed at preventing unnecessary volatility in U.S. bonds—could weaken confidence in the dollar as a reserve currency. Goldman Sachs noted that this argument assumes the U.S. might seek to prevent other countries from selling U.S. Treasuries in the future.

Strategists including Michael Cahill wrote in a report, “This seems somewhat far-fetched,” and, “We are skeptical of claims that this poses a negative impact on the dollar’s reserve status.”

The bank pointed out that Japan can use the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) repo facility. This tool allows foreign central banks to raise dollars using their holdings of U.S. Treasuries without having to sell them. The report stated this highlights one of the dollar’s key advantages: deep capital markets for building reserves during normal times, and channels to access liquidity during stressed periods.

The strategists added, “In our view, actions by the U.S. Treasury and the availability and practicality of the FIMA facility help demonstrate that, at present, no other currency can rival the dollar in practicality, network effects, and supporting infrastructure.”

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The joint Washington-Tokyo action to support the yen was the first such move in nearly thirty years. Although the operation was conducted via the euro to avoid disrupting the U.S. Treasury market, some investors are concerned that direct U.S. support for the yen could inadvertently weaken the dollar and reduce the appeal of U.S. bonds as reserve assets.

The specific operational mechanisms of the intervention have also drawn scrutiny. Last week, the U.S. sold euros to buy yen without prior notification to the European Central Bank, only informing EU officials afterwards.

Strategist Kristine Aquino stated: “The factors behind the dollar and bond markets appear to be more deeply embedded. For the dollar, the ripple effect from the U.S.-Japan joint yen intervention is another major catalyst.”

This does not mean Goldman Sachs believes the dollar’s dominance is without risk. The strategists acknowledge that policy uncertainty could weaken its global role—an issue that is central to their bearish outlook on the dollar for 2025. However, they indicated that applying these concerns to U.S. support for the yen seems far-fetched.

The bank noted that there is precedent for countries using their holdings of U.S. Treasuries to support their own currencies without opposition from Washington. For example, in March this year, several countries sold a substantial amount of U.S. Treasuries to support their currencies when signs of market stress appeared.

“We believe that such forced sell-offs, over time, may actually help reinforce the dollar’s role,” the strategists wrote.