Goldman Sachs has revised its forecast for the Japanese yen, predicting it will reach 165 per dollar within a year, marking it among the most bearish outlooks surveyed by Bloomberg. This represents an increase from their prior forecast of 155. The firm also adjusted its short-term predictions, now expecting the dollar-yen pair to trade at 162 in three months and 163 in six months, up from previous projections of 160 and 158 respectively.
The primary drivers behind this anticipated depreciation include Japan's interest rate differentials with the United States, persistent fiscal pressures in Japan, and the Bank of Japan's gradual approach to raising interest rates. Goldman strategist Karen Reichgott Fishman noted that these factors strongly suggest continued depreciation pressure on the yen, despite its extreme undervaluation based on their estimates. The yen was trading around 161.79 per dollar in early Asian trading on Monday, July 6.
Goldman Sachs also views the yen as a suitable funding currency for carry trades, where investors borrow yen to invest in higher-yielding assets like emerging market currencies. While official intervention by the Japanese government to prop up the yen may offer short-lived effects, its effectiveness is likely limited if macro fundamentals, such as rate differentials favoring the dollar, continue to exert pressure.
The bearish sentiment is widespread, with hedge funds increasing their short bets on the yen to levels not seen since 2017. Additionally, foreign exchange traders assign approximately a 72% chance that the dollar-yen pair will reach 165 by June 2027. This aligns with a growing number of investors and strategists who are bearish on the yen, which is already trading near its lowest levels since 1986.
