Goldman Sachs: Placing Our Forecasts Under Review

Goldman Sachs note that "going into this year, we had expected the Yen to outperform its rates "beta" for four reasons: (i) its correlation to the broad Dollar, (ii) low FX hedging costs, (iii) low Yen valuations, and (iv) scope for increased demand for Japanese equities. While these factors remain relevant, the recent strengthening in the broad USD, combined with USD/JPY's stronger-than-expected correlation with the latest rise in nominal long-end yields, has lowered our conviction on JPY appreciation over the next few months. Moreover, our Japan economists further revised down their forecasts for Q2 growth (from roughly flat to -4.4% qoq ar) following extended and wider domestic lockdowns, leading to increased uncertainty around the impact of Covid on the Olympics this summer. Taken together, we are placing our JPY forecasts under review."