Goldman cuts USD/JPY forecasts, sees 150 in a year as BOJ tightening boosts yen case
At a Glance
Goldman Sachs has revised its USD/JPY forecasts significantly downward, now expecting a move to 150 within a year, a cut that carries substantial implications for market positioning and speculative activity. Per the full note by Eamonn Sheridan, the updated targets (158 for three months, 155 for six months) signal an increased confidence in the Bank of Japan's tightening cycle, which is expected to support the yen as Japanese investors potentially repatriate funds. In light of recent price action pushing USD/JPY towards 160, this development offers bullish cover for the yen amidst a broader trend of improving Japanese economic conditions.
Key Takeaways
- 01Goldman Sachs has downgraded USD/JPY targets to reflect a strengthening yen driven by BOJ policy adjustments.
- 02Market risks in carry trades may emerge if Japanese investors begin repatriating funds.
- 03Goldman’s stance presents a bearish outlook for USD/JPY, contrasting with several other firms still maintaining more bullish expectations.
- 04Focusing on the yen as a recession hedge, suggests strategic shifts for traders in related currency pairs.
Full Analysis
What the desk is arguing
Goldman Sachs has lowered its USD/JPY price targets, now projecting 158 in three months, 155 in six months, and 150 in twelve months, down from 162, 163, and 165 respectively. The bank underscores that a more aggressive stance from the BOJ could enhance the yen's appeal, particularly as they observe rising odds of Japanese capital inflows. Their strategic focus suggests that long yen positions can serve as a hedge against recessionary pressures.
The note highlights significant shifts in carry trade dynamics, especially with Japanese investors potentially reallocating capital back home. This is expected to increase market volatility, particularly in positions that rely on borrowing yen to invest in higher-yielding assets, marking an important pivot for the broader FX landscape.
Where it sits in our coverage
Presently, our consensus forecast for USD/JPY stands at 152.0, with a range between 147.0 and 162.1, demonstrating a tighter outlook than Goldman's new targets. Specific firms consistently aligning with or closely mirroring Goldman's revisions include: - bofa: Dec-26 target 149.0 - morganstanley: Dec-26 target 140.0 - socgen: Dec-26 target 160.0
This is a significant divergence from the consensus where Goldman Sachs' perspective leans towards the lower end of the spectrum.
How other firms see it
Groups such as socgen, which has a relatively aggressive Dec-26 target of 160, align within a framework of expecting further yen strength, however, firms like morganstanley and bofa remain firmly at odds, predicting more pronounced weakness in the yen. This suggests a split sentiment across the market concerning influence of BOJ policy changes on future movements.
The anticipated normalization of BOJ policies creates significant cross-correlation with other currency pairs, particularly EUR/JPY and AUD/JPY, which are susceptible to shifts in Japanese monetary policy and capital flows. These pairs should be monitored closely as they will reflect the impact of the shifting stance in monetary policy.
Market Implications
Traders should particularly monitor USD/JPY around the psychological 150 level. As carry trade exposure shifts, it will be crucial to assess potential volatility spikes in response to any BOJ interventions or unexpected economic data from Japan.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bullish | 1.1500 |
Scotiabank | Bullish | 1.1700 |
ANZ | Bullish | 1.1700 |
From the original
A 15-yen cut to a 12-month target from one of the most influential desks carries weight. It gives yen bulls cover just as USD/JPY pushes towards 160. The bigger risk for the market is to carry trades: if Japanese investors really do start moving money home, positions that borrow
Related speeches
4 itemsGoldman cuts yen forecast to 165, among most bearish on Wall Street
Goldman Sachs' fresh forecast of a weaker yen, with a revised target of 165 for USD/JPY by June 2024, highlights market sentiment swinging firmly toward further depreciation of the currency. As noted in their report, market-implied probabilities now estimate a 72% chance for this level, emphasizing that trader positioning has aligned with forecaster expectations for the yen's continued weakness. There exists a significant divergence from fair value models, indicating persistent pressures driven by US-Japan rate differentials and Japan's fiscal challenges. Coupled with high hedge fund short positions, this setup suggests a potential one-way market dynamic unless there are drastic shifts in monetary policy from either the Federal Reserve or the Bank of Japan [source].
Goldman Sachs sees USD/JPY upside, 160+, as Japan fiscal bets lift intervention risk - investingLive
Goldman Sachs forecasts significant upside for USD/JPY, suggesting a target above 160 due to heightened intervention risks stemming from Japan's fiscal policies. This view challenges the current consensus, which sees more moderate appreciation for the pair over the next year.
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