Goldman Sachs Warns of Weakening Yen on Softening BOJ Hike Bets

Expectations for Japan's monetary policy are shifting, tempering the case for further yen appreciation in the near term. Goldman Sachs says the currency could weaken if views on the Bank of Japan's tightening path turn more dovish and if external rate pressure from the U.S. persists.

The bank sees limited upside for the yen as expectations for Bank of Japan policy tightening moderate due to dissent among board nominees. Governor Kazuo Ueda signaled at a press conference that there is a high bar for an October rate hike, reducing near-term tightening urgency.

Goldman prefers a long yen/euro position over dollar/yen, citing persistent global rate pressures and slow domestic asset reallocation by Japanese investors. The analysts add that any meaningful reallocation of domestic assets by Japanese investors is likely to be a slower process.