Goldman Sachs' note is mainly discussing the suggestion by US Treasury secretary Bessent on Japan making use of a Fed borrowing facility called the the Foreign and International Monetary Authorities (FIMA) repo facility. For some context, the facility allows for foreign central banks to lend their Treasuries for short periods instead of outright selling them if need be. All of this of course is to prevent any major dislocation in the bond market and more importantly avoid any political and economic issues for both sides, if Treasury yields were to rise up further.Bessent alluded to that in his remarks last week: "The facilities that the Fed has, whether it’s the FIMA facility or the swap lines, the purpose is to protect the US economy and to keep any volatility offshore."Now, why is it that Japan needs to resort to such a path when deciding to intervene to defend their own currency? Doesn't Japan have a lavish amount of foreign currency reserves? Technically yes, at least on paper. I made mention of this back in May here:"Now, everyone knows that Tokyo has one of the biggest war chests in terms of foreign currency reserves. They have a whopping $1.2 trillion to work with. However, it is important to note that not all of this is in liquid cash deposits. In fact, over 80% of that are in securities which primarily consist of US Treasuries among other foreign government bonds.So, it is not to say that they have an "unlimited" tap to keep drinking from if they burn out their cash reserves. If it were to come to that, selling Treasuries may have the unintended effect of pushing US yields higher and that is an indirect tailwind for the dollar instead. So, that sort of achieves the opposite effect of what Tokyo wants; that is for a lower USD/JPY."Essentially, intervention liquidity is not so much in abundance as Japan has to resort to finding ways to turn bonds into cash. And therein lies the risk for the US bond market.The note by Goldman Sachs touches on this and argues that while the FIMA facility may help, it is mostly just to smooth the process at the end of the day. Come what may, Japan will still need to sell Treasuries to make do with their intervention efforts."If the Treasury recognises that Japan would like to continue intervention to ensure credible yen strength and wants to prevent a destabilising 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.We do not see 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." This article was written by Justin Low at investinglive.com.