Goldman Sachs Nudges USD/JPY Forecasts Higher

The US bank sees limited risks of yen supports (lower real yields, global equities) emerging and it has nudged higher its forecast profile for USD/JPY.

Goldman Sachs: "Our macro outlook continues to be quite negative for the world's recession hedge. As a duration-sensitive safe-haven currency, the Yen tends to perform best when real yields and equities fall together. We do not expect those factors to be activated anytime soon. With US growth running around 3%, and global growth also perking up, it is no wonder that there has not been much recession risk to boost the Yen. If anything, the global economy's resilience to higher policy rates has put upward pressure on forward yields as investors downgrade the extent of policy “normalization” that will be required. This should limit the attraction of Japan-based assets for both domestic and foreign investors, and a slightly more aggressive BoJ hiking cycle would do little to change that dynamic. In our baseline outlook of solid global growth, upbeat risk sentiment and gradual policy adjustments, there is little reason to expect the Yen to strengthen materially. Policymakers have demonstrated clear concerns over the speed and extent of currency depreciation, and will likely continue to calibrate the response to limit JPY moves. However, we interpret this week's communiqué as a sign that US officials likely cautioned against trying to manage the currency too much. Against a backdrop of higher global policy rates and strong growth fundamentals, we are moving our 6 and 12m USD/JPY forecasts higher and closer to our 3m forecasts, to 155, 155 and 150 in 3, 6 and 12 months (from 155, 150 and 145 previously)."