Wall Street’s bullish dollar thesis leaves yen without a near-term recovery catalyst.
Goldman Sachs raised its USD/JPY forecasts on Sunday, projecting the pair at 162 in three months, 163 in six months, and 165 in 12 months, up from earlier targets of 160, 158, and 155 respectively, CNBC’s Lee Ying Shan reported. The revision came after the yen fell to its weakest level against the dollar in four decades last week — a move that has kept Japan’s Ministry of Finance focused on the currency market and investors watching for any official response.
The bank’s case is structurally driven, not tactical. Goldman cited “higher-for-longer U.S. yields, low recession risk, lingering fiscal concerns, and only gradual BoJ hikes” as the forces it expects to keep depreciation pressure on the yen sustained, per the CNBC report. These factors may contribute to continued focus on the interest-rate differential between the U.S. and Japan.
Intervention Won’t Hold the Line, Goldman Says
Japan’s Ministry of Finance has intervened in yen markets before. Goldman’s read on what happens next time is blunt:
“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 said, as cited by CNBC.
The bank added that previous interventions had only temporarily interrupted the yen’s slide before USD/JPY resumed climbing, and it expects a similar pattern if authorities step in again. Goldman reportedly suggested that previous interventions had a temporary effect, although future outcomes may differ depending on market and policy conditions. .
Japan’s own fiscal policy may compound the problem. Goldman flagged that Japan’s domestic stimulus plans could push up Japanese government bond term premiums relative to U.S. Treasurys — a dynamic it said has historically coincided with further gains in USD/JPY, according to the CNBC report. Changes in Japanese bond supply and U.S. yield levels may remain relevant factors for currency-market participants.
The Dollar Side: AI Capex and Energy as Structural Tailwinds
Goldman’s revised yen call sits inside a broader dollar-bullish framework. The bank attributed its conviction on the greenback to two forces it expects to persist: the U.S. AI investment boom and energy supply disruptions, which it described collectively as a “supply bust” providing structural support for the dollar against lower-yielding currencies, Lee Ying Shan reported for CNBC.
The bank revised its EUR/USD forecasts lower alongside the yen call, projecting the pair at 1.14 in three months before slipping to 1.12 in six months and holding there over a 12-month horizon, per CNBC. The euro and yen are being painted with the same broad brush — both low-yielding currencies facing a dollar that Goldman expects to stay well supported.
| Pair | 3-Month Forecast | 6-Month Forecast | 12-Month Forecast |
|---|---|---|---|
| USD/JPY | 162 | 163 | 165 |
| EUR/USD | 1.14 | 1.12 | 1.12 |
Source: Goldman Sachs via CNBC
Where Goldman Is Still Bullish: High-Carry EM
The divergence in Goldman’s views is worth registering. While the bank cut its yen and euro outlooks, it strengthened forecasts for the Indian rupee, citing improved growth, lower inflation, and expected capital inflows following Reserve Bank of India measures. It also turned more optimistic on Colombia’s peso following a hawkish central bank stance and expectations of fiscal consolidation, CNBC reported.
Goldman said it continues to favour using the yen “as a funder for high-carry EM expressions” — the carry trade framework, borrowing in a low-yielding currency to finance positions in higher-yielding markets. This reflects Goldman’s reported view that rate differentials remain an important consideration.
What Could Change the Picture
Goldman is explicit about the two conditions that could break its thesis: a U.S. recession shock, or a materially faster pace of Bank of Japan rate hikes. The bank said intervention may buy time but — absent either of those developments — any support for the yen is likely to prove temporary, per CNBC.
Both remain plausible tails. A sharper-than-expected U.S. labour market deterioration would reprice the Fed’s path quickly, compressing the yield differential that is doing much of the heavy lifting in Goldman’s dollar call. On the BoJ side, core inflation in Japan has been running above target, and the central bank has shown more willingness to adjust policy than its pre-2024 posture suggested. A shift in BoJ forward guidance — particularly one tied to wage data — could move the pair faster than Goldman’s 12-month path implies.
Neither scenario is Goldman’s base case. Market participants may continue to monitor Bank of Japan policy statements and U.S. economic data for further context in the Bank of Japan’s upcoming policy statements and U.S. growth prints on the BLS calendar.
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