Goldman Sachs Turns Bullish on JPY Amid Policy Shift

Goldman Sachs Research has shifted to a more bullish bias on the Japanese Yen (JPY), making long JPY exposure more attractive. The firm notes that domestic policies in Japan are turning more constructive, which is reducing pressure on the currency. Faster rate hikes have also reduced the inflationary impact of expansionary fiscal policy, further supporting the Yen.

The potential for portfolio flows to shift towards the Yen remains speculative at this point, but Goldman Sachs believes it increases the downside asymmetry in USD/JPY. This makes the Yen a more attractive portfolio hedge, particularly against an onset of recession fears. The risk of additional interventions by central banks also keeps the upside in USD/JPY limited.

Goldman Sachs adds that valuation is becoming a more meaningful driver of performance for the Yen. This change in sentiment could have significant implications for investors and traders who have been short on the currency.