Goldman Cuts Forecasts as Yen Valuation Finally Gets Teeth

The yen's valuation has improved due to changes in Japan's domestic policy mix and global macro backdrop. The Bank of Japan (BoJ) has accelerated its pace of hikes, stabilizing the rise in Japan's term premium. This shift makes cheapness relevant again for JPY.

A potentially bigger story is the possibility of government efforts to encourage greater domestic asset allocation, including from the Government Pension Investment Fund (GPIF). If Japanese investors begin rotating capital back home, the downside profile in USD/JPY changes quickly.

The tactical trade, however, is more complex. The September BoJ meeting introduced uncertainty after dissents from Sato and Asada raised doubts over the administration's support for the currency. The global backdrop also remains unfavorable for JPY bulls.