Goldman Sachs has sharply downgraded its outlook for the Japanese yen, now forecasting that USD/JPY will reach 165 within 12 months. That is weaker than its previous projection of 155 and places the bank among the most bearish institutions on the yen.
Goldman turns more negative on the yen
According to strategist Fishman, the main driver remains the interest-rate gap between the United States and Japan. Goldman said the yen is still facing pressure from several overlapping factors, including Japan’s fiscal strain, persistently high U.S. Treasury yields, and the Bank of Japan’s slow tightening cycle.
The bank added that even though the yen already looks significantly undervalued, those macro forces continue to outweigh valuation arguments. In other words, cheapness alone has not been enough to trigger a durable rebound in the currency.
Goldman also revised its shorter-dated forecasts higher for USD/JPY. It now expects the pair to trade at 162 in three months and 163 in six months, compared with its earlier estimates of 160 and 158, respectively.
Intervention seen as temporary, not structural
The bank said any official intervention aimed at supporting the yen would likely have only a limited and short-lived impact. In its view, the structural reasons behind yen weakness have not changed, so policy action alone would struggle to reverse the broader trend.
That stance aligns with wider market sentiment, where traders continue to focus on rate differentials and yield opportunities rather than on short-term attempts to stabilize the currency.
Positioning and probabilities still favor further weakness
Market data also points in the same direction. Hedge funds’ bearish bets on the yen climbed to their highest level since 2017 last month, underscoring growing conviction that the currency may weaken further from current levels.
Options and broader market pricing suggest that traders see about a 72% probability that USD/JPY reaches 165 by June next year. That indicates the 165 scenario is no longer a fringe call, but one increasingly reflected in positioning and expectations.
Goldman additionally remains positive on yen-funded carry trades, in which investors borrow in yen and allocate capital to higher-yielding assets elsewhere. As long as the yield gap remains wide, that strategy could continue to reinforce downside pressure on the yen. (Jin10)