Goldman Sachs Sees Yen Falling to 165 Per Dollar Within a Year on Delayed BOJ Rate Hikes

Goldman Sachs projects the Japanese yen will weaken to 165 per dollar within the next year as the currency's slide extends.

Bloomberg reported on July 6 that Goldman Sachs raised its 12-month forecast for the dollar-yen exchange rate to 165 from 155. The revised call is among the most bearish forecasts compiled by Bloomberg from major financial institutions.

The bank cited Japan's rising fiscal burden, persistently high US Treasury yields and the Bank of Japan's gradual approach to raising interest rates as key drivers of yen weakness.

Karen Reichgott Fishman, a strategist at Goldman Sachs, said the yen appears deeply undervalued based on the bank's valuation models. Still, she added, the US-Japan interest-rate gap and other factors suggest further depreciation pressure is likely to persist.

The bearish outlook is spreading across the market as well. Hedge funds' net short yen positions rose last month to their highest level since 2017, while foreign-exchange markets are pricing in about a 72% chance that the dollar-yen rate will reach 165 by June 2027.

Goldman Sachs also raised its forecasts for the dollar-yen rate to 162 in three months and 163 in six months. The bank said intervention by the Japanese government in the foreign-exchange market may temporarily curb volatility, but its effect would be limited unless the underlying drivers of yen weakness, including the US-Japan rate gap, begin to ease.