Goldman Sachs Doesn't Expect The Yen Rebound To Persist

The US Bank weighs in on the yen outlook, seeing a limit to USD/JPY downside, see below for more details.

• Goldman Sachs: " Rates relief, but with a limit. USD/JPY came off of its recent highs over the month of November, largely due to a Yen-positive shift in rate differentials as long-end JGB yields fell by only about half as much as US yields. But JPY was essentially tied with CAD for the lowest gains against USD across G10 FX last month, likely for two main reasons. First, the S&P 500 also rallied by nearly 10%, offsetting some of the positive Yen impulse from lower rates—in contrast to other highly rates-sensitive currencies that also benefit from rising equities, like GBP and SEK, on top of other high-beta FX such as AUD, NZD, and NOK. Second, despite the latest moves, market pricing still largely implies that baseline expectations (including our own) continue to be for another year of relatively elevated US yields (with lower rate vol) and solid US growth, a macro backdrop that typically weighs on the Yen. We feel even less inclined to chase any JPY outperformance given our economists’ more dovish BoJ forecast path than the market, though the December meeting could be an important marker for that call. Overall, we continue to see a limit to USD/JPY downside as long as the US appears to be achieving a soft landing and the BoJ remains reluctant to signal an imminent hiking cycle. For that reason, we still think Yen strength is approaching limits and should be faded."