Goldman Sachs revised its 12-month USD/JPY forecast to 165 from 155 on July 6, 2026, placing it among the most bearish calls in Bloomberg’s surveyed consensus, as strategist Karen Reichgott Fishman cited Japan’s fiscal pressures, persistently elevated US Treasury yields, and only gradual Bank of Japan rate hikes as the structural drivers of continued yen depreciation.

The yen was trading at 161.79 per dollar in early Asian trading that Monday, down 0.3% on the session and near its weakest level since 1986, cementing its position as one of the worst-performing major currencies in 2026.

Goldman’s three-month target moved to 162 from 160, and its six-month target to 163 from 158 – a consistent upward shift across the entire forward curve that signals conviction rather than a single-point revision.

Foreign exchange options markets are aligned: traders assign roughly a 72% probability that USD/JPY reaches 165 by June 2027, per Bloomberg data, while hedge fund net short positioning on the yen hit its most extreme level since 2017 last month.

Goldman Sachs News: How Japan’s Debt Dynamics and Higher-for-Longer US Treasury Yields Drive the 165 Call

Goldman Sachs outlook hinges on the rate differential between US Treasuries and Japanese Government Bonds, suggesting continued depreciation pressure on the yen despite its current undervaluation.

With the Federal Reserve maintaining high rates and elevated Treasury yields, capital is shifting from yen-denominated to dollar-denominated assets, exerting ongoing selling pressure on the JPY.

Japan’s fiscal challenges worsen the situation, as high debt servicing costs limit policy flexibility and undermine efforts to defend the yen.

Mark Cranfield from Bloomberg highlights that investors remember the significant drop in USD/JPY in the 1980s, indicating that the current 160–165 range isn’t unprecedented.

Gradual Bank of Japan Hikes: Why the Tightening Path Is Too Slow to Close the Rate Gap and Arrest Yen Weakness

The Bank of Japan ended its negative-rate policy and yield-curve control in early 2025 but maintains a near-zero policy rate, emphasizing gradualism to protect growth.

A modest 25-basis-point hike does not close the gap with US rates, keeping the yen a low-yield funding currency. Goldman Sachs believes the BOJ’s tightening will remain too slow to impact its 12-month forecast.

The August 2024 rate surprise showed that such assumptions can lead to rapid yen rallies, compressing USD/JPY and triggering volatility across equities and crypto.

This incident highlighted the risks of crowded yen short positions, making Goldman Sachs 165 target a cautious base case with significant tail risks.

Yen as Funding Currency: Goldman Sachs Carry Trade Endorsement and the Risk-Asset Implications of Extended Yen Weakness

Goldman endorses the yen carry trade, leveraging low JPY borrowing to invest in higher-yielding assets, expecting this strategy to remain viable through mid-2027 due to persistent yen weakness.

This scenario supports broader risk-on behavior in equities, credit, and crypto markets. However, the significant short-yen positioning among hedge funds raises concerns; any sudden yen strength could lead to a disorderly unwinding of carry trades.

This is reminiscent of the sharp crypto volatility seen in August 2024, with the potential unwind now greater due to extended positioning.

Official Intervention: Why Goldman Expects Any Ministry of Finance Defense of the Yen to Be Short-Lived Against Macro Headwinds

🇯🇵 JAPAN MAY BE FORCED TO SPEND $100 BILLION TO SAVE THE YEN.

USD/JPY just hit 162.66, the highest level in 40 years.

Japan already tried to fix this. In late April and early May, it spent roughly $72-$73 billion defending the yen, its biggest intervention in years.

It failed.… pic.twitter.com/bPkPBH4l2d

— Bull Theory (@BullTheoryio) June 30, 2026

Japan’s Ministry of Finance is believed to have intervened in late April and early May when USD/JPY briefly exceeded 160, with BOJ data showing a drop in current account balances consistent with FX support operations totaling about ¥9.8 trillion (around $62 billionBn).

Fishman notes that while such interventions may buy time, they do not change the yen’s structural weakness. Goldman’s view suggests that macro headwinds, yield gaps, and the BOJ’s limited pace of easing will overwhelm policy efforts over the next year.

While interventions can temporarily compress USD/JPY by several hundred pips, without significant shifts in interest-rate differentials, such actions historically reverse. The 165 target reflects potential intervention without suggesting a lasting trend reversal.

The author does not hold any position in the securities discussed in the article.

– Written by


Frank Davies

STORY LINK Euro to Dollar Week Ahead Forecast: Weak US Jobs Data Puts Fed Outlook in Focus

The Euro to Dollar exchange rate (EUR/USD) has stabilised above the 1.14 level after weaker-than-expected US jobs data prompted investors to reassess expectations for further Federal Reserve interest-rate hikes.

While the softer labour market report has eased some of the Dollar’s recent momentum, analysts remain divided over whether the pause is temporary or the start of a broader reversal.

EUR/USD Forecasts: Fed policy crucial

Danske Bank maintains a 12-month Euro to Dollar (EUR/USD forecast of 1.12 as the US raises interest rates.

In contrast, Scotiabank is still backing EUR/USD gains to 1.22 by the end of 2026 as yields don’t back dollar gains.

EUR/USD again found support below 1.14 during the week and secured a limited net recovery to near 1.1450.

Interest rate expectations will be a key element with a particular focus on the Federal Reserve. Danske Bank commented; “We forecast two hikes for December and March. We see relative monetary policy as a negative driver for EUR/USD, especially towards 2027.”

The latest US employment report was weaker than expected with the increase in non-farm payrolls held to 57,000 for June compared with consensus forecasts of around 115,000. The main feature was a sharp drop in the labour force.

In response, there were fresh doubts whether the Fed would hike interest rates which curbed dollar support.

MUFG commented; “the tariffs implemented in 2025 are set to fall out of the annual CPI calculations over the coming months that will add downside pressure to annual inflation while a quirk in rental inflation should also reverse in H2. That will help ease Fed concerns over inflation risks that should see yields decline going forward.”

It added; “Apart from the RBNZ, no other G10 central bank has as much tightening priced as the Fed and hence there is scope for US yields to fall relative to elsewhere. This should see this recent dollar buying momentum reverse. We would also expect some renewed focus on US fiscal risks.”

Scotiabank also considers Fed expectations have overshot; “We see the USD’s latest gains as being counter to the longer-term fundamental trend, and see little upside from current levels.

It added; “The Fed’s belated reaction to the inflationary pressures arising from the US/Iran conflict have delivered a material reappraisal of its policy path. However, we believe that the Fed’s repricing is overdone while also suspecting that markets may be underestimating the hawkish appetites of the BoC, ECB, and BoE (as well as the BoJ).”

Danske still sees scope for net Euro losses; “We turned our EUR/USD forecast profile lower in May as we saw a structural shift in relative macro and monetary policy drivers. The moderation in energy prices is EUR-positive in isolation, but the fact that EUR/USD has still declined over the past month supports our view that the cross will be driven lower by more long-term factors.”

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The British Pound has strengthened against both the Euro and the US Dollar following signs that political uncertainty in the UK is easing, with EUR/GBP falling to around 0.8550 and GBP/USD holding above 1.3350.

JPMorgan has turned more constructive on Sterling, upgrading its 2026 forecasts following Andy Burnham’s reassuring commitment to the UK’s fiscal rules.

The bank is now bullish on the Pound against lower-yielding currencies and has trimmed its EUR/GBP forecasts.

JPMorgan now expects EUR/GBP at 0.87 in the third quarter, 0.88 in the fourth quarter, 0.89 in one year and 0.86 over the longer term.

According to the bank, Burnham’s communication around fiscal discipline has reduced political risk and should support Sterling over the coming months.

However, JPMorgan cautions that the current improvement may prove temporary.

As the Labour Party conference approaches in September, investors could begin rebuilding a political risk premium depending on the details of future fiscal policy.

The bank remains broadly constructive on Sterling, although it notes that the outlook for GBP/USD is mixed because it also depends on the direction of the US Dollar.

JPMorgan forecasts GBP/USD at 1.28 over the next quarter and 1.28 on a one-year view.

JPMorgan believes easing political uncertainty has improved the near-term outlook for the Pound, but fiscal policy announcements later this year will determine whether Sterling can extend its recent gains.

The US dollar initially dropped on Friday but has turned around to show signs of life. With this, we continue to see longer-term traders buy into this pair. The interest rate situation continues to favor higher levels.

USD/JPY

The US dollar initially fell during the trading session here on Friday, but then turned around to show signs of life again. The Bank of Japan did intervene over the last couple of days, but quite frankly, there isn’t a whole lot that they can do to change the overall market behavior. This is an area that I think will continue to offer support all the way down to the 160-yen level. Turning around and breaking above the top of the candlestick on Friday would be a good sign, and I do think that the interest rate differential will continue to favor the US dollar.

The Bank of Japan and Japan’s Economic Outlook

The Japanese yen is in serious trouble. I think they have to look at this through the prism of the massive amount of debt in Japan, which just cannot be serviced with high rates. If that’s going to remain the case, then it’s only a matter of time before we go much higher.

Longer-term, I think we go as high as 244 yen. Right now, 224 yen is a measured move of the rounding bottom. Ultimately, I think this is a market that will remain choppy, and it will get intervened in occasionally, but I look at these drops in price as value. The interest rate differential remains huge.

Yes, I understand that the Bank of Japan intervened early on Friday, and then the non-farm payroll number came out weaker than anticipated, but we are light years away from the differential closing, and I still like this as a longer-term buy and hold, and I do add every time it drops.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire

– Written by


James Fuller

STORY LINK Pound to Dollar Weekly Forecast: Chancellor Appointment in Focus as GBP Recovers

The Pound to Dollar exchange rate (GBP/USD) has recovered to two-week highs near 1.3380 as investors continued to unwind bearish Sterling positions following signs of a smoother UK political transition.

Attention is now shifting towards Andy Burnham’s expected appointment of a new Chancellor, a decision widely seen as the next major test of market confidence in UK fiscal policy.

GBP/USD Forecasts: Waiting for the new Chancellor

Danske Bank forecasts that the Pound to Dollar (GBP/USD) exchange rate will slide to 1.26 on a 12-month view amid a vulnerable Pound and firm dollar.

Bank of America (BoA), however, expects a net gain to 1.37 by the end of this year as the Pound secures net support on capital inflows.

According to BoA; “Strong cross-border M&A inflows likely to support sentiment as political uncertainty recedes and focus turns to enhanced UK-EU relations and lower trade frictions.”

GBP/USD posted a net gain to a 2-week high around 1.3380 during the week with evidence that Pound benefitted from a covering of short positions.

Credit Agricole commented; “The GBP is still looking oversold, according to our FX positioning data and could continue to benefit from any potential short squeeze as well.”

Fiscal policy will be a key element, especially with strong expectations that Burnham will become the next Labour Party leader and be installed as Prime Minister.

ING commented; “ Andy Burnham will probably take over as Labour’s leader and UK PM on 20 July. The focus will then be on whether he appoints Ed Miliband as Chancellor (probably a little sterling negative) and then what policies are planned to be enacted in Burnham’s first budget – probably in early November.”

Scotiabank commented; “the “revolving door” at Number 10 over the past few years is a poor look for a large, developed economy and any tilt to the left in the ruling Labour party will register on GBP sentiment.”

Bank of England (BoE) policy will also be important with further doubts whether the central bank will hike rates.

According to ING; “the UK economy typically performs poorer in the second half of the year, and we suspect that Andrew Bailey’s dovish half of the MPC would be looking to restart the BoE easing cycle at the first opportunity.”

Danske Bank expects no BoE rate hikes. In contrast, the bank forecasts that the Federal Reserve will hike rates in December and March.

Scotiabank maintains a cautious stance on the dollar; “ the prospect of lower energy prices is already weighing on inflation expectations and tighter policy in the early days of a reformist Fed chair look unlikely.

It added; “Broader dollar gains look stretched and markets are already quite long the USD but strength will persist while markets anticipate a tightening being the Fed’s next move. We think structural challenges (debt/deficits) remain medium-term constraints on dollar gains as well.”

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TAGS: Pound Dollar Forecasts