Goldman Sachs just told the world to expect more pain for the Japanese yen. The bank’s updated forecasts project the dollar-yen exchange rate climbing to 162 in three months, 163 in six months, and 165 within a year.
The yen is already trading near 40-year lows against the dollar, hovering around the 161.8 to 162.8 range. Goldman is essentially saying: it gets worse from here.
Why the yen keeps sliding
The story behind the yen’s decline comes down to interest rate differentials. US Treasury yields continue to offer a meaningful advantage over their Japanese counterparts, and Goldman sees no reason for that gap to close anytime soon.
The bank points to several factors keeping the pressure on. A limited risk of recession in the US means the Federal Reserve has little urgency to slash rates. Japan’s own fiscal challenges, including mounting government debt, constrain Tokyo’s options. And the Bank of Japan has been hiking interest rates at a pace best described as glacial.
