Synopsis:

Goldman Sachs has shifted from a tactical to structural bullish stance on the Japanese yen, citing heightened US recession risks, policy uncertainty, and the erosion of US exceptionalism as major drivers for prolonged USD weakness.

Key Points:

• US recession risk and elevated policy uncertainty are making safe-haven currencies like JPY and CHF more attractive for structural allocation.

• Goldman had previously recommended tactical JPY longs, but now sees grounds for longer-term JPY strength as the US dollar's high valuation—supported by exceptional growth—erodes.

• A loss of US exceptionalism, coupled with lower equity markets and revised downside risks to US growth and rates, further supports this strategic shift.

• Goldman revised its USD/JPY forecasts sharply lower:

  • 3-month: 138 (vs. 150 previously)

  • 6-month: 136 (vs. 151)

  • 12-month: 135 (vs. 152)

• Risks are skewed toward reaching the 12-month target of 135 earlier than anticipated.

Conclusion:

Goldman Sachs believes the fundamental case for long JPY is now clear and enduring. The firm expects USD/JPY to move lower sooner than previously forecast, driven by a structural deterioration in the US macro backdrop and growing demand for safety assets.