Goldman Sachs Yen Forecast: Why 165 Yen Became 150

Three months ago, they said it would hit 165 yen to the dollar. Now, they say it’s heading to 150.

In a report dated September 25, Goldman Sachs lowered its 12-month USD/JPY forecast from 165 to 150, citing the Bank of Japan’s (BOJ) accelerated rate hikes and the potential for Japanese capital to return home.

At a glance, it looks like a 180-degree turn for the Wall Street giant.

However, when placed side-by-side with their July report, the picture changes. In July, Goldman explicitly listed a condition that has now occurred, and they have simply adjusted their numbers based on that premise.

Goldman Sachs Yen Forecast: How the Numbers Changed

Goldman Sachs has revised its USD/JPY targets to 158 in 3 months, 155 in 6 months, and 150 in 12 months.

According to Bloomberg, the report was authored by strategist Karen Reichgott Fishman.

Since a lower number in USD/JPY means the yen is gaining value, this target revision signals a shift toward a stronger yen.

Interestingly, these numbers have already moved twice this year.

Goldman Sachs USD/JPY Forecast Changes (Unit: Yen per Dollar)

Timeline	3 Months	6 Months	12 Months
Before July	160	158	155
Early July Revision	162	163	165
Sept 25 Revision	158	155	150

In early July, they raised their existing targets of 160, 158, and 155 to 162, 163, and 165. The outlook was for a year-long trend of a weaker yen. In less than three months, they have completely reversed that stance.

Looking at one more number provides a sense of speed. On the 25th, the yen reached as high as 158.28 per dollar during intraday trading, which is essentially the same as the new 3-month target of 158. Goldman’s model assumes a slow, gradual decline over the course of a year, not an immediate crash. The 12-month target of 150 represents a decline of approximately 4.7% from current levels.

Was the July Weak-Yen Forecast Wrong?

Goldman Sachs’ July forecast wasn’t so much “wrong” as it was conditional.

At the time, the report identified only two variables that could halt the USD/JPY climb: a shock where U.S. growth unexpectedly stalls, or the Bank of Japan pivoting to much more aggressive tightening. The logic was that without these, the yen would continue to weaken.

The environment at the time was also skewed toward a weak yen. U.S. interest rates remained high, the risk of a U.S. recession seemed low, and the BOJ was raising rates only incrementally. Goldman even recommended using the yen as a funding currency for investments in high-yield emerging market assets.

August was a turning point. Japanese authorities intervened heavily to buy yen, with Goldman estimating the move at up to $85 billion over two days—the largest two-day intervention since 2011. Even the U.S. participated. Yet, Goldman did not lower its 165 yen target. Their judgment was that intervention only changes the path, not the destination, and that without policy changes, downward pressure on the yen would return.

I believe this is the key to reading the recent forecast revision.

A forecast that wouldn’t budge despite historic market intervention changed after a single 0.25 percentage point hike by the BOJ.

It suggests that the rudder for the yen, in Goldman’s view, is not the Ministry of Finance’s intervention funds, but interest rates.

Bank of Japan Rate Hikes Turned the Tide Toward a Stronger Yen

The first reason for the change is the speed of the Bank of Japan’s rate hikes.

On September 18, the BOJ raised its policy rate to 1.25%, a 0.25 percentage point increase, and signaled the possibility of further tightening. Governor Kazuo Ueda stated that the policy landscape has shifted, noting that the focus is no longer just on pushing inflation above 2%, but on stabilizing it at 2%.

Why are interest rates so decisive?

For the past few years, the weak yen has been supported by the yen carry trade. By borrowing yen at near-zero rates and buying high-yield assets like U.S. Treasuries, investors earn the interest rate differential. As this trade grows, the market sees constant selling of yen and buying of dollars.

As Japanese interest rates rise, borrowing costs increase and the interest rate gap narrows, weakening the incentive to maintain these positions. When liquidation begins, investors must buy back yen to pay off their loans, leading to a surge in yen demand.

Strategist Fishman added fiscal issues to this. The Japanese government’s expansionary fiscal policy exerts upward pressure on inflation, and the BOJ’s rapid rate hikes are helping to curb that pressure, easing the burden on the currency.

The market was already moving ahead of this.

In early September, U.S. Treasury Secretary Scott Bessent urged Japan to raise rates to curb the weak yen, and the USD/JPY rate plunged from the low 160s on the 2nd to the low 155s on the 4th, falling in just three days. The trend that had seen the yen reach its weakest level in nearly 40 years at 164 in July was broken in just two months.

Pension Fund Repatriation: The Second Pillar of the Yen Forecast

The second reason is the potential for Japanese capital held abroad to return to the domestic market.

At the center of this story is the world’s largest pension fund, the Government Pension Investment Fund (GPIF).

If this fund reduces its share of foreign assets and increases domestic holdings like Japanese government bonds, it must sell dollar assets and buy yen, which acts as a catalyst for a stronger yen.

How much money is involved? Crédit Agricole calculated that if the GPIF’s bond allocation rises to around 31% and other public pension funds follow suit, approximately $115 billion could return to Japan. Assuming such asset allocation changes, they see the short-term fair value for USD/JPY at 148–150 yen.

However, this is still a hypothesis.

Goldman acknowledges that the repatriation scenario is largely speculative, noting that while the risk of USD/JPY falling has increased, it is because the probability of this scenario is rising.

Crédit Agricole is even more cautious. They drew a line by stating it is unknown how the GPIF will change its asset allocation, and they set the target for reaching 150 yen for the fourth quarter of 2027, later than Goldman. Their average forecast for the fourth quarter of this year is 156 yen.

Even So, Goldman Sachs Isn’t Telling You to Buy Yen Immediately

This is the part not clearly visible in the headlines.

Goldman Sachs stated that rather than betting directly on a stronger yen against the dollar, they prefer investing in a stronger yen against the euro. This means they remain cautious about the yen in the short term.

So, what has changed?

Fishman wrote that holding long positions in the yen has become more attractive, and the reason is interesting: its appeal as a hedge, an insurance policy against the spread of recession fears. They believe an asymmetry has emerged where the yen has more room to fall against the dollar than to rise, and the threat of further intervention by Japanese authorities also limits the upside for the dollar.

Knowing this difference, the headline “Goldman, Yen Strength Forecast” reads a bit differently.

The direction has changed, but the speed is slow, and it is more of a shift in probabilities than a conviction. The fact that the 3-month target is almost identical to the current exchange rate proves this.

Is 150 Yen Still Weak? Converting to Won Changes the Perspective

Contrary to the term “yen strength transition,” 150 yen is historically still in the weak-yen zone.

As recently as March 2024, the 151 yen level was the year’s high, and the October 2022 peak of 151.96 yen was called the weakest the yen had been since 1990. Goldman’s 12-month target is right around the level that was considered a “record-breaking weak yen” two years ago.

Forecasts from other banks during the same period point in a similar direction.

Bank of America revised its year-end USD/JPY forecast to 149 yen, and bets among hedge funds on a stronger yen beyond the 150 level by year-end are increasing.

For those in Korea looking to exchange yen, there is an extra step in the calculation.

The won-to-yen price per 100 yen is the KRW/USD rate divided by the JPY/USD rate, so judging based only on JPY/USD only tells half the story.

Assuming the KRW/USD rate remains constant, if the JPY/USD rate drops from 157 to 150, the cost of 100 yen in won rises by about 4.7%. Conversely, if the dollar weakens across the board and the KRW/USD rate also drops, some of that rise is offset.

Ultimately, Goldman’s 150 yen is the endpoint of a one-year trajectory, and the first signpost that path passes is 158 yen in three months.

Given that the intraday exchange rate on September 25 already hit 158.28 yen, the market is currently standing right in front of that first signpost.