Goldman Sachs Sees Yen Falling to 165 Per Dollar Within a Year as BOJ Delays Rate Hikes
Summary
- Goldman Sachs said yen weakness would persist, with the dollar-yen exchange rate projected to reach 165 yen within a year.
- Goldman Sachs said Japan's rising fiscal burden, the US-Japan interest-rate gap, and the Bank of Japan's gradual rate hikes are driving the yen lower.
- Hedge funds' net short yen positions have climbed to the highest level since 2017, and the market is pricing in about a 72% chance that the dollar-yen exchange rate reaches 165 by June next year.
Forecast Trend Report by Period
Goldman Sachs expects the Japanese yen to weaken to 165 per dollar within the next year as the Bank of Japan's slow pace of rate increases keeps pressure on the currency.
Bloomberg reported on July 6 that Goldman raised its 12-month dollar-yen forecast to 165 from 155. The new target is among the most bearish projections compiled by Bloomberg from major institutions.
The bank cited Japan's growing fiscal burden, persistently high US Treasury yields and the BOJ's gradual rate-hike path as key drivers of further yen weakness.
Karen Reichgott Fishman, a strategist at Goldman Sachs, said the yen appears deeply undervalued on the bank's own metrics. Even so, the gap between US and Japanese interest rates points to continued depreciation pressure.
Bearish bets on the yen are also building across the market. Hedge funds' net short positions in the currency climbed last month to the highest level since 2017, while the foreign-exchange market is pricing in about a 72% chance that dollar-yen reaches 165 by June next year.
Goldman also raised its dollar-yen forecasts to 162 in three months and 163 in six months. It said intervention by the Japanese government could briefly ease volatility in the foreign-exchange market, but the impact would be limited unless underlying drivers of yen weakness, including the US-Japan rate gap, begin to fade.
