Goldman Sachs: If Japan's government pension fund increases allocation to Japanese bonds, structural yen appreciation may impact Asian foreign exchange markets.

BlockBeats news, September 10: Goldman Sachs said in its latest report that the yen has appreciated by more than 4% since the start of September, and the Bank of Japan's hawkish policy shift, together with market expectations that Japan's Government Pension Investment Fund GPIF will adjust its asset allocation, are jointly driving the foreign exchange market to reassess the yen's medium-term trajectory.

Goldman Sachs believes that if GPIF shifts part of its assets from overseas allocations to Japan's domestic fixed-income market, the yen may see structural appreciation. Based on its roughly $2 trillion in assets under management, a 5 percentage point increase in domestic fixed-income allocation would theoretically correspond to about $100 billion in dollar-yen selling, a scale roughly equivalent to half of Japan's annual current account surplus, and could also trigger the unwinding of previously accumulated yen-funded carry trades.

This change will spill over into Asian currencies. Goldman Sachs, looking back at data since 2022, said the South Korean won is most sensitive to yen moves, with a beta of about 0.45; the Thai baht and Malaysian ringgit follow, while offshore renminbi and the New Taiwan dollar will also be affected. The report pays particular attention to the won: after USD/KRW rose to around 1350, South Korean policy signals indicated that officials may be relatively comfortable with the current exchange rate level, and the National Pension Service's suspension of part of its foreign exchange hedging and demand for foreign exchange purchases for overseas investment will slow the won's further appreciation.

In North Asia, Goldman Sachs continues to favor the New Taiwan dollar strengthening against the renminbi, maintaining a short offshore renminbi against New Taiwan dollar view; in South Asia, it maintains a bearish view on the Philippine peso and a bullish view on the Indian rupee against the Philippine peso. Goldman Sachs believes that if the yen continues to strengthen, Asian currencies will usher in a new round of divergence, and the focus of the foreign exchange market will also shift from the dollar's one-way move to whether Japanese capital repatriation can truly change regional capital flows.

It should be noted that GPIF increasing its allocation to Japanese domestic bonds remains a Goldman Sachs scenario projection, not a formally implemented decision.