Goldman 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.
What the desk is arguing
The desk believes Goldman's aggressive target for USD/JPY underscores a pronounced bearish outlook for the yen amidst prevailing macroeconomic conditions. Per the full note, the expectation is reinforced by a historical peak in hedge fund short positioning and the outlook for US-Japan rate differentials.
Goldman Sachs has raised its three-month USD/JPY forecast to 162 and its six-month target to 163, reflecting their outsize view on short-term carry trade dynamics. The market context suggests that intervention efforts from the Bank of Japan are likely to be only temporary, failing to alter the underlying trend of yen depreciation.
Where it sits in our coverage
Currently, consensus targets for USD/JPY suggest a March 2026 average of 155.00, with projections from firms varying: - Citi: 155.00 (Mar26) - Goldman: 155.00 (Mar26) - MUFG: 153.00 (Mar26)
This view sits at the upper bound of broader institutional expectations, particularly when considering the more conservative targets from firms like Citi and MUFG, both anticipating a weaker currency than Goldman's forecast.
How other firms see it
Firms aligned with Goldman's view largely reflect a bearish sentiment towards the yen, including Goldman, Citi, and MUFG. Conversely, firms like Stanchart and Morgan Stanley maintain more conservative targets, suggesting a slower view on yen depreciation or even potential stabilization.
The trajectory of USD/JPY will also impact and be impacted by the Eurozone's monetary policy stances, creating indirect interactions with pairs such as EUR/USD and GBP/USD. Watch for the implications of consistent rate adjustments from the Federal Reserve in relation to this USD/JPY dynamic.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Goldman Sachs forecasts USD/JPY at 165 by June 2024, aligning with a 72% market-implied probability.
- 02High hedge fund short positioning suggests a strong bearish sentiment towards the yen.
- 03Continued divergence from fair value indicates that stabilizing interventions will likely be ineffective.
- 04The outlook for the yen is heavily influenced by US-Japan interest rate differentials and Japanese fiscal pressures.
Market implications
Watch for movements in USD/JPY around the psychological barrier of 165, as well as potential shifts in sentiment driven by upcoming Fed announcements. The prevailing hedge fund positioning signifies a market ready for either abrupt movement or sustained trends, hinging heavily on monetary policy updates.
Risks to this view
Any reversal in the yen's trajectory would likely require a notable pivot from either the Bank of Japan, effectively tightening policy faster than currently anticipated, or unexpected dovish signals from the Federal Reserve that could stabilize the yen.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | — | 1.1445 |
Citi | — | 1.1000 |
MUFG | — | 1.2000 |
Goldman's shift to one of the most bearish USD/JPY calls on the Street, alongside a market-implied probability of around 72% for 165 by next June, suggests positioning and forecaster consensus are increasingly aligned around further yen weakness rather than a reversal, even with the currency already trading well below what most models suggest is fair value. The bank's view that any official intervention would likely prove short-lived implies traders may treat verbal or actual yen-buying operations as tactical rather than structural, limiting how much such moves can durably reverse the trend while US-Japan rate differentials and Japanese fiscal pressures persist. With hedge fund short positioning already at its highest since 2017 and Goldman explicitly favouring the yen as a carry trade funding currency, the setup points to continued one-way pressure unless there's a meaningful shift in either Fed or BOJ policy expectations.
Goldman Sachs cut its one-year USD/JPY forecast to 165 from 155, also raising its 3-month call to 162 and 6-month to 163, citing widening rate differentials, fiscal pressure and slow BOJ tightening despite the yen's undervaluation. Summary: Goldman Sachs cut its one-year USD/JPY forecast to 165 from a prior 155, making it one of the most bearish institutions on the yen The bank raised its three-month forecast to 162 from 160 and its six-month forecast to 163 from 158 Goldman cited widening US-Japan rate differentials, Japanese fiscal pressure, elevated US Treasury yields and slow Bank of Japan tightening as drivers of further yen weakness The bank said the yen appears deeply undervalued but that any official intervention would likely be short-lived, with underlying depreciation drivers remaining in place Hedge funds' short positions on the yen hit their highest level since 2017 last month Market-implied probability of USD/JPY reaching 165 by June next year stands at about 72%, and Goldman favors using the yen as a funding currency for carry trades Goldman Sachs has sharply cut its yen forecast, now projecting USD/JPY will reach 165 within a year, up from a prior forecast of 155 and placing the bank among the most bearish institutions on the currency. Goldman also raised its nearer-term forecasts, lifting its three-month call to 162 from 160 and its six-month projection to 163 from 158.
The bank's strategists pointed to widening US-Japan rate differentials, Japanese fiscal pressure, elevated US Treasury yields and a slow pace of Bank of Japan tightening as the key drivers behind the revised outlook, even as they described the yen as appearing deeply undervalued on a fundamental basis. Goldman said any official intervention aimed at supporting the currency would likely prove short-lived, since the underlying causes of the yen's depreciation remain firmly in place regardless of near-term buying operations. The bank's more bearish stance comes as hedge funds' short positions on the yen hit their highest level since 2017 last month, while market pricing currently implies about a 72% probability that USD/JPY reaches 165 by June of next year, broadly consistent with Goldman's own view.
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