Goldman revises its USD/JPY forecasts. Here are the new targets By Investing.com

Investing.com — Goldman Sachs has revised upward its forecasts, citing higher-for-longer U.S. yields, low U.S. recession risk, lingering fiscal concerns in Japan and only gradual Bank of Japan rate hikes as drivers of continued depreciation pressure on the Japanese currency.

The broker now targets at 162 in three months, 163 in six months and 165 in 12 months, up from prior forecasts of 160, 158 and 155, respectively.

The revision follows the yen’s recent slide to its weakest level against the dollar in 40 years, a move that has kept Japan’s Ministry of Finance focused on the exchange rate and, according to Goldman, “seemingly ready to conduct JPY-buying operations again.”

The analysts noted that the latest reports suggest the MoF may drop final warnings ahead of official intervention to discourage short positioning.

Goldman cautioned, however, that intervention is unlikely to reverse the underlying trend. The broker said the relatively quick return to an upward trajectory in USD/JPY within weeks of the most recent operations echoed the aftermath of April 2024 intervention, “implying a similar outcome if additional operations occur soon.”

“We see no reason for the upward trend in USD/JPY to stop without an unexpected negative US growth shock or a BoJ pivot towards more aggressive policy tightening,” Goldman said.

The broker flagged growing market concern about inflationary and fiscal pressure in Japan stemming from the government’s stimulus plans, which it said should continue to push up term premium in relative to . 

Goldman noted that over the past year, in weeks when Japan term premium rose versus the United States, USD/JPY gained roughly 0.35% on average, and approximately 0.60% on average when the move exceeded one standard deviation in both Japan term premium and the differential.

Goldman said intervention could slow the move and “buy time for a potential shift in the macro that then leads to sustained yen appreciation,” but argued that without such a shift, “the impact ultimately proves short-lived with diminishing effect.”

The broker said it views both a U.S. recession and a more rapid pace of BoJ hikes as unlikely over the coming year. Goldman 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.