Goldman Sachs: Structural Yen Appreciation May Impact Asian Forex Market if Japan's Government Pension Investment Fund Increases Allocation to Domestic Bonds

BlockBeats News, September 10 — Goldman Sachs stated in its latest report that the yen has appreciated by over 4% since early September. This is driven by the Bank of Japan's shift toward a more hawkish policy stance and market expectations of asset allocation adjustments by Japan's Government Pension Investment Fund (GPIF). Goldman Sachs believes that if GPIF reallocates part of its assets from overseas investments to Japan's domestic fixed-income market, the yen could experience structural appreciation. Based on GPIF's approximately $2 trillion in assets under management, a 5-percentage-point increase in domestic fixed-income allocation would theoretically correspond to roughly $100 billion in dollar-to-yen sell orders, a scale equivalent to about half of Japan's annual current account surplus. This could also trigger the unwinding of previously accumulated yen-funded carry trades. Such changes are likely to spill over into Asian currencies. Goldman Sachs analyzed data since 2022 and found that the Korean won is the most sensitive to yen movements, with a beta of approximately 0.45. The Thai baht and Malaysian ringgit follow, while the offshore yuan and New Taiwan dollar would also be affected. The report particularly highlights the Korean won: as the USD/KRW exchange rate approaches 1350, signals from South Korea's policymakers suggest they may be relatively comfortable with the current exchange rate level. Additionally, the National Pension Service halting some forex hedging and overseas investment-related foreign exchange purchases could slow the pace of further won appreciation. In North Asia, Goldman Sachs continues to favor the New Taiwan dollar strengthening against the yuan and maintains its bearish stance on offshore yuan versus the New Taiwan dollar. In South Asia, it remains bearish on the Philippine peso while leaning bullish on the Indian rupee against the peso. Goldman Sachs concludes that if the yen continues to strengthen, Asian currencies may enter a new phase of divergence, shifting the forex market's focus from the dollar's unilateral movements to whether Japan's capital repatriation can genuinely alter regional capital flows. It is important to note that GPIF increasing its allocation to Japanese domestic bonds is still a scenario analysis by Goldman Sachs and not an officially implemented decision.