Goldman cuts yen forecast to 165 per US dollar, likes carry trades

[SINGAPORE] Goldman Sachs Group sees the yen weakening to 165 per dollar in a year’s time, driven in part by Japan’s interest rate differentials with the US. 

The Wall Street bank has revised its forecast to 165 from 155, ranking it among the most bearish forecasters surveyed by Bloomberg.

The change reflects fiscal pressures in Japan, higher-for-longer US Treasury yields and only gradual rate hikes from the Bank of Japan, strategist Karen Reichgott Fishman wrote in a note.  

This backdrop “strongly argues for continued depreciation pressure on the currency, despite its extreme undervaluation on our estimates”, she wrote. 

Goldman joins growing ranks of investors and strategists who are increasingly bearish on the yen, which is already trading around its lowest levels since 1986, cementing its place as one of the worst-performing major currencies in 2026.

Positioning supports expectations for further yen weakness. Hedge funds ramped up their bearish bets on Japan’s currency last month to the most since 2017.

Foreign exchange traders assign around a 72 per cent chance that the dollar-yen pair will rise to 165 by June 2027. 

The yen was at 161.79 per dollar in early Asian trading on Monday (Jul 6), down 0.3 per cent from the previous session.  

“Investors looking back to the 1980s are aware (of) how far the dollar-yen (pair) declined and even a partial reversal of that swoon puts the cross into a higher trading range,” said Mark Cranfield, markets live strategist at Bloomberg.

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Goldman also favours the yen as a funding currency for carry trades. The strategy involves borrowing yen to invest in higher-yielding assets such as emerging market currencies.

The firm sees the dollar-yen pair trading at 162 in three months’ time and at 163 in six months. It had previously expected the pair to trade at 160 and 158 over the same period. 

Goldman says the effectiveness of official intervention to prop up the yen is likely to be short-lived. That is especially the case if macro fundamentals continue to push in other directions, such as rate-differentials that favour the dollar.

“The latest reports that the Ministry of Finance may end the warnings ahead of official operations may suppress volatility for some time again, but the underlying sources of yen weakness remain,” Fishman wrote. BLOOMBERG