Goldman Sachs: Only Moderate Upside For USD/JPY

Goldman Sachs note that "higher inflation and upside risk to U.S. rates into the end of the year, all else equal, imply further JPY depreciation. However, the EUR may a better funding candidate over the short term for a few reasons. First, both currencies tend to depreciate when the U.S. yield curve bear flattens. Second, even though Japanese real GDP growth came in at -3.0% Q/Q annualised in Q3, well below market expectations, our economists forecast strong growth in Q4, reflecting the benefits from economic reopening and fiscal stimulus. Japan's new Prime Minister, Fumio Kishida, has unveiled a record ¥55.7tn ($490bn) economic stimulus package to boost the country's recovery from the impact of the COVID-19 pandemic, defying a global trend to unwind stimulus measures amid rising inflation fears. Finally, if an increasingly hawkish Fed were to damage risky assets, the JPY would outperform."