Approaching the 160 red line again! High city government signals support for rate hikes but still can't save the yen, Goldman Sachs says all interventions are “buying time with money.”

According to observations by Zhitong Finance APP, despite reports that the government led by Prime Minister Sanae Takaichi supports a Bank of Japan rate hike, the yen remains just "a step away" from the critical 160 level against the US dollar.

On Thursday, the yen traded steadily, hovering around 159.36 yen per US dollar. In the past, whenever the yen approached the 160 threshold, it often signaled that the government might intervene to support the exchange rate.

According to sources, the next rate change is most likely to occur in September or October. They added that the Bank of Japan’s concerns about "the weak yen pushing up prices" are beginning to align with the government’s wish to "enhance the recent effectiveness of interventions in the USD/JPY exchange rate," with both sides agreeing on "the need to raise rates soon."

Investors said the news had little impact on the yen, as markets have long anticipated a rate hike by the Bank of Japan. Due to the substantial interest rate differential with the US and heavy debt burden, the yen has continued to weaken recently.

Masayuki Nakajima, senior strategist at Mizuho Bank, said: "Therefore, the market’s focus has already shifted from 'will the Bank of Japan raise rates in September' to 'how quickly will the subsequent tightening happen.'"

Earlier discussions about a Bank of Japan rate hike failed to sustain a rally for the yen

Meanwhile, on Thursday, the yield on Japan's 10-year government bonds stood at 2.89%, not far from the thirty-year high set last month.

The Prime Minister's Office said in an emailed statement: "We believe that any specific monetary policy measures, including a rate hike, should be decided by the Bank of Japan."

ING strategist Francesco Pesole said that although he expects the yen to move toward 160 again, in the coming weeks, expectations for "an easing in US monetary policy" will provide some support for the yen.

He said, "In my view, the current issue is that the market still sees the Federal Reserve’s stance as rather hawkish."

Shusuke Yamada, Head of Japan FX and Rates Research at Bank of America, said, "After the coordinated intervention with the US on July 31, market confidence in Japan’s resolve to 'defend the yen' had improved," "However, in the past week, the rebound of the US dollar against the yen without any intervention seems to have eroded that credibility."

Karen Fishman, senior FX strategist at Goldman Sachs, said Japan has enough cash to carry out several rounds of yen-buying operations similar in scale to the interventions carried out jointly with the US.

Goldman Sachs estimates that in the first two days of last month's action, the Japanese government used about $85 billion. This marks the largest two-day intervention in Japanese history, second only to October 2011, when Tokyo intervened after the Fukushima disaster.

The Ministry of Finance said it would use the Federal Reserve’s FIMA repo facility to borrow dollars, using its holdings of US Treasuries as collateral. Japan holds about $1 trillion in foreign exchange reserves, of which about $200 billion is in cash or cash equivalents.

Fishman said, "Realistically, they are far from exhausting all this money, but I think this precisely shows that—as long as they are willing—they have enough ammunition for ongoing intervention."

However, she warned that intervention is not a sustainable solution, that it "ultimately only buys time," and pointed out that after Tokyo’s solo interventions in April and May, the yen returned to forty-year lows within a few months.