Goldman Cuts USD/JPY Forecasts Amid BOJ Tightening

Goldman Sachs has significantly lowered its forecasts for the USD/JPY exchange rate across various time horizons. Strategist Karen Reichgott Fishman now expects the pair to reach 158 in three months, 155 in six months, and 150 in 12 months. This marks a reversal from the bank's previous estimates of 162, 163, and 165.

The bank attributes this downward revision to an improving policy backdrop in Japan and the prospect of Japanese money returning home. The Bank of Japan's recent rate hike and Governor Kazuo Ueda's declaration of a shift in policy phase have contributed to this scenario.

Fishman argues that faster BOJ hikes help offset the inflationary pull of expansionary fiscal policy, making it more likely that Japanese investors will move their portfolios back into domestic assets. The bank acknowledges that this repatriation story remains largely speculative but sees the odds rising, which adds to the downside risks for USD/JPY.

Goldman expects the threat of further intervention by Japanese authorities to limit how far the dollar can climb against the yen. In the near term, however, the bank is keeping a cautious tactical stance and recommends selling the euro against the yen instead of betting directly against the dollar.