Goldman Sachs has lifted its USD/JPY targets, now projecting 162 in three months, 163 in six months and 165 in 12 months. The bank blames higher-for-longer U.S. yields, Japan's fiscal strains and only gradual Bank of Japan tightening, and warns that yen-buying intervention would likely offer only temporary relief.
Goldman Sachs has raised its USD/JPY forecasts to 162 in three months, 163 in six months and 165 in 12 months, up from prior targets of 160, 158 and 155. The bank expects the yen to keep weakening, and it sees little that would reverse the trend.
Why Goldman sees a weaker yen
The bank ties the revision to higher-for-longer U.S. yields, low U.S. recession risk, lingering fiscal concerns in Japan and only gradual Bank of Japan rate hikes. Together these keep depreciation pressure on the Japanese currency.
The forecast change follows the yen's slide to its weakest level against the dollar in 40 years. That move has kept Japan's Ministry of Finance focused on the exchange rate and, according to Goldman, seemingly ready to conduct yen-buying operations again. The analysts also noted that the latest reports suggest the ministry may drop final warnings ahead of official intervention to discourage short positioning.
Intervention may not stop the trend
Goldman cautioned that intervention is unlikely to reverse the underlying move. The bank said USD/JPY returned to an upward path within weeks of the most recent operations, echoing the aftermath of the April 2024 intervention. The bank said it sees no reason for the upward trend in USD/JPY to stop without an unexpected negative U.S. growth shock or a BoJ pivot toward more aggressive policy tightening.
The bank flagged growing market concern about inflationary and fiscal pressure in Japan from the government's stimulus plans, which it said should keep pushing up term premium in Japanese government bond yields relative to U.S. Treasury yields. Over the past year, in weeks when Japan term premium rose versus the United States, USD/JPY gained roughly 0.35% on average, and about 0.60% when the move exceeded one standard deviation in both measures.
Goldman said it views both a U.S. recession and a faster pace of BoJ hikes as unlikely over the coming year. The bank added that it continues to favor using the yen as a funding currency for high-carry emerging market positions, alongside other low-yielding G10 currencies.
Source: Investing.com
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