Goldman Sachs says carry trades face best conditions in over 20 years

Goldman Sachs has declared carry trades are enjoying their most favorable environment in more than two decades. The call comes as the Japanese yen continues its slow-motion slide against the US dollar, creating a widening gap that traders are exploiting with increasing enthusiasm.

The bank updated its USD/JPY forecast on July 6, 2026, and the numbers weren’t kind to yen bulls. Goldman now expects the dollar to hit 162 yen within three months, 163 in six months, and 165 within a year. That last figure is a meaningful jump from their previous target of 155.

The yen is already trading near levels not seen in roughly 40 years. Japanese authorities have not exactly been sitting on their hands. Between April and May 2026, they intervened to the tune of over 11 trillion yen, attempting to prop up their currency. The interventions yielded limited results against the yen’s broader depreciation trend.

The interest rate differential between the US and Japan remains stubbornly wide. The Bank of Japan has been adjusting its monetary policy at a pace that can charitably be described as glacial. Meanwhile, Japan’s fiscal challenges continue to pile up in the background, giving the yen even less reason to strengthen.

Why crypto traders should care about Japanese monetary policy

Yen-funded carry trades don’t just target Treasury bonds or emerging market debt. In recent years, they’ve become a meaningful source of liquidity flowing into risk assets, including Bitcoin and other digital assets. When traders borrow cheap yen and look for yield, some of that capital inevitably finds its way into crypto markets.

Analysts are already drawing connections between sustained yen weakness and potential Bitcoin rallies, with some suggesting yen weakness could continue supporting crypto markets well into 2027 if the interest rate differential holds.

This isn’t purely theoretical. In August 2024, an unexpected yen carry trade unwind sent shockwaves through global markets. Bitcoin and equities sold off in tandem as leveraged positions were rapidly closed. That episode demonstrated just how deeply intertwined yen-funded carry trades have become with risk asset pricing, including in crypto.

What this means for investors

For crypto-focused investors, sustained carry trade activity means a consistent flow of capital searching for returns in higher-yielding assets. Bitcoin, with its growing institutional footprint and established correlation to broader risk sentiment, stands to benefit from that flow.

But the risks are real. If the Bank of Japan were to surprise markets with a faster-than-expected rate hike, or if global risk sentiment shifted abruptly, the same dynamics that support crypto on the way up would accelerate selling on the way down. The August 2024 episode was a rehearsal for exactly that scenario.

The key variable to watch is the Bank of Japan’s next move. Goldman’s forecast implicitly assumes the BOJ continues its unhurried approach to policy normalization. Any deviation from that assumption, particularly a hawkish surprise, would be the single biggest risk to the carry trade thesis and, by extension, to the risk asset tailwind it provides.