Goldman cuts yen forecast to 165, among most bearish on Wall Street

Goldman's shift to one of the most bearish USD/JPY calls on the Street, alongside a market-implied probability of around 72% for 165 by next June, suggests positioning and forecaster consensus are increasingly aligned around further yen weakness rather than a reversal, even with the currency already trading well below what most models suggest is fair value. The bank's view that any official intervention would likely prove short-lived implies traders may treat verbal or actual yen-buying operations as tactical rather than structural, limiting how much such moves can durably reverse the trend while US-Japan rate differentials and Japanese fiscal pressures persist. With hedge fund short positioning already at its highest since 2017 and Goldman explicitly favouring the yen as a carry trade funding currency, the setup points to continued one-way pressure unless there's a meaningful shift in either Fed or BOJ policy expectations.

Goldman Sachs cut its one-year USD/JPY forecast to 165 from 155, also raising its 3-month call to 162 and 6-month to 163, citing widening rate differentials, fiscal pressure and slow BOJ tightening despite the yen's undervaluation.

Summary:

• Goldman Sachs cut its one-year USD/JPY forecast to 165 from a prior 155, making it one of the most bearish institutions on the yen
• The bank raised its three-month forecast to 162 from 160 and its six-month forecast to 163 from 158
• Goldman cited widening US-Japan rate differentials, Japanese fiscal pressure, elevated US Treasury yields and slow Bank of Japan tightening as drivers of further yen weakness
• The bank said the yen appears deeply undervalued but that any official intervention would likely be short-lived, with underlying depreciation drivers remaining in place
• Hedge funds' short positions on the yen hit their highest level since 2017 last month
• Market-implied probability of USD/JPY reaching 165 by June next year stands at about 72%, and Goldman favors using the yen as a funding currency for carry trades

Goldman Sachs has sharply cut its yen forecast, now projecting USD/JPY will reach 165 within a year, up from a prior forecast of 155 and placing the bank among the most bearish institutions on the currency.

Goldman also raised its nearer-term forecasts, lifting its three-month call to 162 from 160 and its six-month projection to 163 from 158. The bank's strategists pointed to widening US-Japan rate differentials, Japanese fiscal pressure, elevated US Treasury yields and a slow pace of Bank of Japan tightening as the key drivers behind the revised outlook, even as they described the yen as appearing deeply undervalued on a fundamental basis.

Goldman said any official intervention aimed at supporting the currency would likely prove short-lived, since the underlying causes of the yen's depreciation remain firmly in place regardless of near-term buying operations. The bank's more bearish stance comes as hedge funds' short positions on the yen hit their highest level since 2017 last month, while market pricing currently implies about a 72% probability that USD/JPY reaches 165 by June of next year, broadly consistent with Goldman's own view. The bank also said it favors using the yen as a funding currency for carry trades, a stance that reflects continued conviction that the currency's weakness has further to run.