Goldman Sachs Raises Dollar-Yen Forecasts Again, Now Sees 165 Yen Per Dollar Within a Year

Since covering Japan's bankruptcy surge and Goldman Sachs' earlier forecast revisions on July 5, the bank has raised its projections again. This time, the forecasts are more bearish on the yen than anything it had previously published.

The New Numbers

Goldman Sachs now projects the dollar-yen rate at 162 in three months, 163 in six months, and 165 in twelve months, according to CNBC. Its prior targets were 160, 158, and 155, respectively. That represents a significant directional reversal on the six- and twelve-month calls, which had previously assumed some yen recovery.

The yen had already fallen to its weakest level against the dollar in roughly four decades in late June, keeping Japan's Ministry of Finance on high alert and traders watching for another government intervention.

Why Goldman Is Doubling Down

The bank lays out a specific macro argument. Higher-for-longer U.S. interest rates, low U.S. recession risk, Japan's own fiscal stimulus plans pushing up domestic bond term premiums, and only gradual Bank of Japan rate hikes all combine to sustain depreciation pressure on the yen, Goldman said.

The dollar side of the equation gets its own tailwind. Goldman attributes continued greenback strength to two structural forces: the U.S. artificial intelligence investment boom and energy supply disruptions. The bank expects both to persist, which it says keeps the dollar bid against lower-yielding currencies—with the yen sitting squarely in that category.

"We see no reason for the upward trend in USD/JPY to stop without an unexpected negative U.S. growth shock or a BoJ pivot towards more aggressive policy tightening," Goldman said, as reported by CNBC.

On Intervention: Temporary Relief, Nothing More

Japan's Ministry of Finance has intervened in currency markets before to prop up the yen, and the question of whether it will act again has been a persistent one all year. Goldman's answer is essentially that it won't matter much.

Previous interventions only temporarily interrupted the yen's slide before USD/JPY resumed climbing, the bank noted. Goldman expects the same dynamic to repeat. The bank added that Japan's fiscal stimulus plans could actually widen the spread between Japanese and U.S. bond term premiums—a dynamic that has historically pushed USD/JPY higher, not lower.

A coordinated, sustained intervention by Japan, potentially with U.S. coordination as occurred in 1995, or a faster-than-expected Bank of Japan rate hiking cycle could genuinely alter the trajectory. Some analysts argue Goldman is underestimating the BoJ's political will to act more aggressively if the yen approaches 165, a psychologically significant level that could accelerate import inflation and domestic political backlash. Goldman's response is that without a concrete U.S. growth shock or an explicit BoJ policy pivot, any such support remains temporary by historical precedent.

The Dollar Picture Globally

Goldman's yen call is part of a broader dollar-strong thesis. The bank revised its euro forecasts lower as well, now projecting EUR/USD at 1.14 in three months, slipping to 1.12 in six months, and holding there through twelve months.

Not everything points to a weaker dollar, though. Goldman said it has actually strengthened its outlook for several higher-yielding emerging-market currencies. The Indian rupee gets a more optimistic forecast, citing improved growth, lower inflation, and expected capital inflows after Reserve Bank of India policy moves. Colombia's peso also gets a boost in Goldman's view, following a hawkish Colombian central bank and expectations of fiscal consolidation there.

The bank said it continues to favor using the yen as a funding currency for high-carry emerging market trades—meaning investors borrow cheap in yen and deploy that capital into higher-yielding EM assets. That strategy only works as long as the yen stays weak and BoJ rates stay low, which Goldman clearly expects.

What Comes Next

The key question is whether the Bank of Japan will move faster than Goldman currently models. Governor Kazuo Ueda has signaled a gradual approach to rate normalization, but a yen at 165 would import inflation at a scale that could force his hand. Goldman's entire forecast structure rests on that pivot not happening on any accelerated timeline. If it does, the bank's 12-month target falls apart.