Japanese Yen Forecasts Lowered at Goldman Sachs
- Written by: Gary Howes
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The Dollar to Yen exchange rate has risen to its highest level since 1990 at 151.97 in midweek trade, but according to new forecasts from Goldman Sachs, there is more to come.
The Wall Street investment bank has raised its projections for Dollar-Yen, judging the recent interest rate hike at the Bank of Japan was not enough to alter the Yen's direction.
The Yen fell to fresh lows against a host of currencies, hampered by Japan's low interest rates relative to elsewhere.
The Pound to Yen is also flying, having last week hit its highest level in nine years at 193.53. The Euro to Yen exchange rate is trending higher, having reached its highest level since 2008 last week at 165.35.
"The Bank of Japan hiked rates for the first time in 17 years, and for just the fourth time since the introduction of the zero interest rate policy in 1999. While this marks another giant leap for the BoJ, we think it is a small step for the Yen," says Goldman Sachs in a weekly currency research note.
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Economists at the bank say the hike is likely too tentative to overcome the broader macro backdrop.
"Fundamentally... we do not think the BoJ’s actions will prompt significant repatriation from Japan-based investors—that would need to come from a change in the returns available abroad," explains Goldman Sachs.
Analysts also do not expect careful Fed cuts driven by cooler inflation to boost the Yen.
"If anything, the anticipation of adjustment cuts has reduced the probability of the recession risks that tend to activate the Yen’s safe-haven appeal, so we do not expect any compression in the forward rate differentials that tend to matter for JPY, even as the policy rate differential narrows a bit," says Goldman Sachs.
Regarding the threat of FX intervention, Goldman Sachs expects Japan policy to continue to be sensitive to the exchange rate, but it remains the case that the benign macro risk environment should weigh on the Yen over time.
Goldman Sachs raises its forecast path for Dollar-Yen higher again to 155, 150, and 145 in three, six and 12 months (vs 145, 142 and 140 previously).