Goldman Sachs Revises USD/JPY Forecasts
Goldman Sachs has upgraded its outlook for the USD/JPY exchange rate, now projecting the pair to reach 162 within three months, 163 within six months, and 165 by the end of twelve months. These targets replace the previous forecasts of 160, 158 and 155 respectively.
The upward revision is driven by expectations of higher‑for‑longer U.S. Treasury yields, a low probability of a U.S. recession, persistent fiscal concerns in Japan, and only gradual rate hikes by the Bank of Japan, all of which are seen as sustaining depreciation pressure on the yen.
Goldman notes that the yen’s recent slide to its weakest level against the dollar in four decades has kept Japan’s Ministry of Finance attentive to the exchange rate, and the firm believes the ministry is “seemingly ready to conduct JPY‑buying operations again.” The analysts also suggest the Ministry may drop final warnings before any official intervention aimed at discouraging short‑positioning.
The brokerage observed that the quick return to an upward USD/JPY trajectory within weeks of the most recent operations mirrors the pattern seen after the April 2024 intervention, implying a similar outcome if additional operations occur soon.
Despite the possibility of intervention, Goldman cautions that such actions are unlikely to reverse the underlying upward trend in USD/JPY unless an unexpected negative U.S. growth shock occurs or the Bank of Japan pivots to more aggressive tightening.
Goldman highlighted growing market concern about inflationary and fiscal pressure in Japan stemming from the government’s stimulus plans, which it expects to push up the term premium on Japanese government bonds relative to U.S. Treasury yields. Historically, when Japan’s term premium rises versus the United States, USD/JPY has gained roughly 0.35 % on average, and the gain increases to about 0.60 % when the premium differential exceeds one standard deviation.
The firm argues that any intervention would only temporarily slow the yen’s depreciation, buying time for a macro‑economic shift that could eventually lead to yen appreciation, but without such a shift the impact of intervention would be short‑lived.
Goldman also maintains that both a U.S. recession and a rapid acceleration of BoJ rate hikes are unlikely over the coming year, and it continues to recommend using the yen as a funding currency for high‑carry emerging‑market positions alongside other low‑yielding G10 currencies.