Goldman Sachs has delivered a more bearish assessment on the Japanese yen, forecasting a continued weakening against the U.S. dollar, with any market intervention expected to offer only temporary relief. The Wall Street investment bank has revised its dollar-yen exchange rate predictions upwards, now projecting 162 in three months, 163 in six months, and 165 in 12 months, a notable increase from its previous estimates of 160, 158, and 155, respectively.
This updated outlook arrives as the yen recently dipped to its lowest valuation against the dollar in four decades, intensifying scrutiny from Japan's Ministry of Finance and keeping investors on alert for potential currency support measures.
Goldman Sachs attributes the persistent depreciation pressure on the yen to several macro factors: the expectation of "higher-for-longer" U.S. yields, a low risk of recession in the U.S., ongoing fiscal concerns within Japan, and the Bank of Japan's (BoJ) cautious, gradual approach to interest rate hikes. The bank highlighted that historical interventions have only briefly interrupted the yen's slide before the USD/JPY pair resumed its climb, a pattern they anticipate will repeat.
"In fact, we see no reason for the upward trend in USD/JPY to stop without an unexpected negative US growth shock or a BoJ pivot towards more aggressive policy tightening," Goldman analysts underscored. Additionally, Japan's proposed fiscal stimulus could potentially increase domestic bond term premiums relative to U.S. Treasurys, a dynamic historically associated with further gains for the USD/JPY. They concluded that intervention might buy time, but sustained yen support is unlikely without a U.S. recession or significantly accelerated BoJ rate increases.
This revised yen forecast aligns with Goldman's conviction that the dollar will maintain its robust strength. The bank points to two powerful forces that have underpinned the greenback this year: the burgeoning **U.S. artificial intelligence investment boom** and persistent **energy supply disruptions**. These factors are expected to endure, providing prolonged support for the dollar, particularly when pitted against lower-yielding currencies.
Consequently, Goldman Sachs views broad-based dollar weakness as improbable and has lowered its euro forecasts, predicting EUR/USD at 1.14 in three months, before a slide to 1.12 in six months, holding that level over a 12-month period. Conversely, the firm remains bullish on several higher-yielding emerging-market currencies. It has strengthened its projections for the **Indian rupee**, citing improved growth, reduced inflation, and anticipated capital inflows following the Reserve Bank of India's policy actions. Optimism also extended to **Colombia's peso**, driven by a hawkish central bank stance and expectations of fiscal consolidation. Reflecting this strategic divergence, Goldman continues to advocate using the yen "as a funder for high-carry EM expressions," advising investors to borrow in low-yielding currencies to finance positions in higher-yielding markets.
