Goldman Sachs Research discusses the scope for Japan' MoF to intervene to cap USD/JPY using the Fed’s Foreign and International Monetary Authorities (FIMA) Repo Facility without dumping U.S. Treasuries.

"We believe the FIMA facility can be a helpful way to avoid the funding and spread pressures associated with large, sudden sales of US Treasuries. If the Treasury recognizes that Japan would like to continue intervention to ensure credible Yen strength and wants to prevent a destabilizing force in the market, the FIMA facility can smooth the impact on the market. Crucially though, while using FIMA buys time, it does not prevent Japan's sales of US Treasuries. Eventually, the MoF will have to sell Treasuries and/or let enough securities roll off its balance sheet to fund the intervention," GS notes.

"We do not see Secretary Bessent's request that the MoF intervene using FIMA as an attempt to prevent Japan or other reserve managers from selling Treasuries. It is primarily a way to smooth the potential impacts from large-scale FX intervention, which could have disruptive effects on the Treasury market,' GS adds.