Why Goldman says the yen may not have much room to strengthen
There’s room for the yen to weaken if assumptions about the pace of Bank of Japan policy tightening become more dovish, according to Goldman Sachs. While appreciation of the yen has been fueled by speculation of a bigger policy shift in Japan, dissents against the rate hike from Japanese Prime Minister Takaichi’s BOJ board nominees have raised fresh doubts for investors regarding a broader policy shift to support the currency, strategists led by Kamakshya Trivedi wrote in a report. “Ueda’s comments in the press conference emphasized that the Bank does not feel behind the curve, suggesting a high bar for an October hike,” Goldman said. In addition, the current global backdrop remains a source of downward pressure on the yen, which Goldman reckons “should persist if the Fed hikes again in October as our economists expect—further reduces the case to be short USD/JPY tactically.” JPY= YTD mountain JPY Goldman analysts said they prefer being long the yen versus the euro rather than outright dollar-yen in the near term, noting that if there’s any meaningful reallocation of domestic assets by Japanese investors who have foreign assets largely unhedged, it will be a “slower-moving process.” Also there is a “reduced sense of urgency at the September BOJ meeting” while Goldman keeps its baseline for consecutive hikes from the Fed. “There are also no clear catalysts for nearer-term JPY strength without intervention or more news pointing to some portfolio shift, whether it be the International Transactions in Securities data next month (unlikely) or more signs of it being under discussion,” Goldman added.
