Goldman Sachs has revised its outlook for the Japanese yen, forecasting it will decline to 165 per dollar over the next year. This adjustment is considerably more pessimistic than its previous prediction of 155, positioning it among the most bearish estimates on Wall Street.
The yen has recently hit its lowest value against the dollar since 1986, ranking it as one of the major currencies facing the most turmoil in 2026.
Factors Behind Goldman Sachs' Deteriorating Yen Forecast
The bank has also adopted a more negative stance on the yen for the near future, now anticipating the currency pair to be at 162 in three months and at 163 in six months a change from earlier projections of 160 and 158, respectively. Strategist Karen Reichgott Fishman identified several contributing factors that are undermining the yen.
- Persistent high U.S. yields
- Low risk of recession in the U.S.
- Fiscal pressures in Japan
- Gradual interest rate increases by the Bank of Japan (BoJ)
The Unsustainable Defense of the Yen
Japan's Ministry of Finance remains vigilant regarding the currency market, but Goldman Sachs believes any official actions to prop up the yen will yield only temporary effects. They remarked, “We see no reason for the upward trend in USD/JPY to cease without an unexpected negative shock to U.S. growth or a pivot by the BoJ towards more assertive policy tightening.”
In line with this bearish outlook, hedge funds have ramped up their short positions on the yen to levels not seen since 2017 last month. According to Bloomberg, traders currently estimate a 72% probability that the dollar/yen pair will hit 165 by June 2027.
The Broader Economic Context
Goldman Sachs also anticipates the U.S. dollar will maintain its strength, linking this projection to the ongoing artificial intelligence (AI) investment boom in the United States, as well as challenges in energy supply.
Additionally, the bank has lowered its euro forecasts while expressing a more positive outlook on the Indian rupee and Colombia’s peso.
