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Goldman Sachs has raised its USD/JPY exchange rate forecasts, predicting the Japanese yen will remain under pressure as elevated U.S. Treasury yields, limited recession risks in the United States, Japan’s fiscal concerns, and gradual Bank of Japan (BoJ) rate hikes continue to support the U.S. dollar.
The investment bank now expects USD/JPY to reach 162 in three months, 163 in six months, and 165 within 12 months, revising its previous forecasts of 160, 158, and 155, respectively.
The updated outlook comes after the yen weakened to its lowest level against the U.S. dollar in four decades, prompting Japan’s Ministry of Finance (MoF) to closely monitor currency movements. Goldman noted that Japanese authorities appear prepared to intervene in the foreign exchange market again through yen-buying operations if volatility accelerates.
According to the bank, recent reports suggest the MoF may skip its traditional final verbal warnings before intervening, a strategy aimed at discouraging speculative bets against the yen.
However, Goldman believes any intervention would likely provide only temporary relief. The bank pointed to previous currency operations, including the intervention in April 2024, after which USD/JPY resumed its upward trend within weeks. Goldman expects a similar outcome if Japan intervenes again without a meaningful shift in broader economic conditions.
The bank said sustained yen appreciation would likely require either an unexpected slowdown in the U.S. economy or a significantly more aggressive tightening cycle from the Bank of Japan. At present, Goldman considers both scenarios unlikely over the next year.
Goldman also highlighted growing concerns over Japan’s fiscal stimulus plans and persistent inflation, which could lift the term premium on Japanese government bonds relative to U.S. Treasuries. Historically, the bank noted, wider term premium differentials have supported further gains in USD/JPY.
Given its outlook, Goldman continues to favor the Japanese yen as a funding currency for high-carry emerging market investments alongside other low-yielding G10 currencies, expecting the broader trend of yen weakness to remain intact despite the possibility of occasional government intervention.
