Goldman Sees USD/JPY at 165 in Twelve Months Despite Japan's Intervention

Goldman Sachs is predicting that the US Dollar (USD) to Japanese Yen (JPY) exchange rate will reach 165 in twelve months, despite Japan's recent intervention. In a two-day operation, estimated at up to $85 billion, both the US and Japan intervened to prop up their currencies, but Goldman believes this is unlikely to change the fundamental reasons for the dollar's strength.

The bank argues that the intervention was not a substitute for policy, and without a subsequent rate hike or other changes, downward pressure on Japanese government bonds (JGBs) and the yen will reemerge. The odds of faster BoJ rate hikes are low, as Goldman sees the current situation as an 'unstable equilibrium'. As a result, the bank has not changed its longer-run forecast profile.

The USD/JPY pair remains below July's highs near 164, but has begun to recover from the intervention-driven fall. Goldman sees USD/JPY at 162 in three months, 163 in six months, and 165 in twelve months. The bank emphasizes that while the joint US-Japan operation can stop a disorderly run through 164, it is unlikely to deliver a lasting yen recovery without further policy changes.