Goldman Sachs predicts yen will drop to 165 per dollar

Goldman Sachs has sharply lowered its one‑year USD/JPY forecast to 165, up from a prior 155, and raised its three‑month and six‑month targets to 162 and 163 respectively. The bank cites widening U.S.–Japan interest‑rate differentials, fiscal pressure in Japan and the Bank of Japan’s slow tightening as the main drivers of further yen weakness.

The yen is currently trading around 162 per dollar, the weakest level since 1986, and has briefly broken the Bank of Japan’s “red line” of 162. Hedge funds have built net short positions of roughly 146,000 contracts – the largest gap between shorts and longs since 2007 – reflecting a surge in carry‑trade activity that borrows cheap yen to invest in higher‑yielding assets.

Japan’s government, insurers, pension funds and individuals hold more than $1.2 trillion of U.S. Treasury bonds, making the yen a key source of ultra‑low‑cost funding for the global market. The yen’s decline raises import‑cost pressures for Japan and amplifies risk for investors if the carry‑trade unwinds sharply.