Goldman Sachs Group NYSE:GS, a major Wall Street investment bank, has projected further weakness for the yen as Japan's currency continues to face pressure from wide interest-rate differentials with the U.S. The bank revised its one-year dollar-yen forecast to 165 from 155, placing Goldman among the more bearish forecasters surveyed by Bloomberg. Strategist Karen Reichgott Fishman pointed to Japan's fiscal pressures, higher-for-longer U.S. Treasury yields, and only gradual Bank of Japan rate hikes as factors that could keep depreciation pressure on the yen, even as Goldman estimates the currency is historically undervalued.
The call comes as the yen trades around its weakest levels since 1986, cementing its position as one of the worst-performing major currencies over the past year. In Asia trading Monday, the yen was around 162.21 per dollar, down 0.5% from the previous session. Goldman also raised its shorter-term forecasts, now expecting dollar-yen to trade at 162 in three months and 163 in six months, compared with earlier projections of 160 and 158. Positioning also appears to support the bearish view, with hedge funds recently increasing short yen bets to the highest level since 2017, while foreign-exchange options traders assign roughly a 76% chance that dollar-yen reaches 165 by next June.
For investors, Goldman's revised view may reinforce the yen's role as a major funding currency for carry trades, where traders borrow in yen and invest in higher-yielding assets such as emerging-market currencies. The bank also suggested that official intervention to support the yen may only have a short-lived effect if the broader macro backdrop continues to move against Japan's currency. Fishman noted that reports suggesting Japan's Ministry of Finance may stop issuing warnings before official operations could suppress volatility for some time, but the underlying sources of yen weakness remain.