Goldman Sachs Group Inc. anticipates the Japanese yen will depreciate to 165 against the US dollar within a year, driven by factors such as the interest rate differential between Japan and the United States. The Wall Street investment bank has revised its forecast from a previous 155 to 165, positioning it as one of the most bearish institutions on the yen in a Bloomberg survey. Strategist Karen Reichgott Fishman wrote in a report that this adjustment reflects Japan's fiscal pressures, persistently high US Treasury yields, and the prospect of only gradual interest rate hikes by the Bank of Japan. She noted that this backdrop "strongly argues for continued depreciation pressure on the currency, despite it being severely undervalued by our estimates."
Speculators are holding near-record short positions on the yen. Goldman Sachs is among the growing number of investors and strategists joining the bearish camp on the Japanese currency. The yen is currently trading near its weakest level since 1986, cementing its status as one of the worst-performing major currencies over the past year. Positioning data also supports expectations for further yen weakness.
Hedge funds increased their bearish bets against the yen last month to the highest level since 2017. Foreign exchange traders estimate a roughly 72% probability that the US dollar will rise to 165 yen by June next year. In early Asian trading on Monday, the yen traded at 161.79 per dollar, down 0.3% from the previous session. Strategist Mark Cranfield stated, "Investors dating back to the 1980s know how far USD/JPY can fall, and even a partial reversal of that plunge would push the pair into a higher trading range."
Goldman Sachs also favors using the yen as a funding currency for carry trades. This strategy involves borrowing yen to invest in higher-yielding assets, such as emerging market currencies. The firm now expects the dollar-yen pair to trade at 162 in three months and 163 in six months, revising its previous forecasts of 160 and 158, respectively.
Goldman Sachs indicated that official intervention measures aimed at supporting the yen are likely to have only a temporary effect, particularly if macroeconomic fundamentals continue to push in the opposite direction, such as interest rate differentials favoring the US dollar. Fishman wrote, "Recent reports that Japan's Ministry of Finance may cease issuing warnings before taking official action could suppress volatility again for a period, but the underlying drivers of yen weakness remain."
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