Yen Weakness Ahead? Goldman Sees Room for Weakening

Goldman Sachs analysts believe there's room for the yen to weaken if assumptions about the Bank of Japan's policy tightening pace become more dovish. The appreciation of the yen has been driven by speculation of a bigger policy shift in Japan, but dissents against the rate hike from Japanese Prime Minister Takaichi's BOJ board nominees have raised doubts among investors.

Strategists led by Kamakshya Trivedi wrote that Ueda's comments in the press conference emphasized that the Bank does not feel behind the curve, suggesting a high bar for an October hike. This is further reinforced by the current global backdrop, which remains a source of downward pressure on the yen.

Goldman analysts prefer being long the yen versus the euro rather than outright dollar-yen in the near term, noting that any meaningful reallocation of domestic assets by Japanese investors would be a slower-moving process. They also keep their baseline for consecutive hikes from the Fed and see no clear catalysts for nearer-term JPY strength without intervention or more news pointing to some portfolio shift.