Goldman Sachs: "Yen at 155 within 6 months... Yen depreciation will continue"

Decline to 1990s Level
BOJ Maintains Easing Policy
Recovery to 135 Yen Expected by End of Next Year

The Bank of Japan (BOJ) is expected to see the value of the yen against the dollar fall to 1990s levels within the next six months if it maintains its current accommodative monetary policy. However, such a sharp depreciation of the yen could prompt the BOJ to shift to tightening, in which case the yen's value could recover to the 135-yen range by the end of next year.

Yen Could Rise to 155 per Dollar

On the 29th, the strategy team led by Kamakshiya Trevedi, co-head of global FX at Goldman Sachs, predicted that if the BOJ maintains its dovish stance, the yen could fall to 155 per dollar. Previously, Goldman Sachs had forecasted the yen to rise to 135, but this outlook has been revised downward. The previous lowest dollar-yen exchange rate was 160.35 yen, recorded on April 2, 1990.

[Image source=Asia Economy]

The strategy team explained, "As the BOJ remains distant from raising interest rates and the Japanese stock market provides considerable support, the yen may continue to weaken," adding, "The expectation of an improving U.S. economy will also put downward pressure on the yen's value."

The yen exchange rate continues to decline. At 9:38 a.m. in the Tokyo foreign exchange market, the dollar-yen rate was 146.41 yen. The yen rate surged back into the 140 range within a month since mid-July. The market is paying close attention to whether financial authorities will intervene as the yen rate surpassed 145 yen, a level at which authorities previously intervened in the foreign exchange market.

Accommodative Monetary Policy Likely to Continue for Now

Despite this situation, analysis suggests that the BOJ's continued large-scale monetary easing will put further pressure on the yen's depreciation.

Governor Ueda, speaking as a panelist at the 2023 Annual Economic Policy Symposium (Jackson Hole Meeting) held in Jackson Hole, Wyoming, on the 27th (local time), said, "I believe core inflation is still slightly below the 2% target," and added, "Therefore, we are maintaining the current monetary easing stance." He also forecasted, "Inflation will decline toward the end of the year." This indicates the intention to continue accommodative policies as inflation remains below the target.

Kazuo Ueda, BOJ Governor
Photo by Yonhap News

The yen exchange rate surged past the 150-yen level last October for the first time in 32 years as the BOJ maintained accommodative monetary policy for 10 years, including keeping short-term interest rates at -0.1%, widening the interest rate gap with the U.S. Expectations for a shift to tightening grew with Governor Ueda's appointment in April this year, but as he indicated a continuation of existing policies, the yen's value resumed its downward trend.

Goldman Sachs expects the yen to shift back to a strengthening phase by the end of next year. The strategy team forecasts the yen to rise to 135. The yen's depreciation, expected to continue for about six months, could pressure the BOJ to switch to a hawkish monetary policy. Goldman Sachs noted, "The yen depreciation expected to persist over the next six months will force the BOJ to take strong measures, including a hawkish shift and intervention in the foreign exchange market."

This content was produced with the assistance of AI translation services.