Goldman Sachs: Looking for opportunities to engage in USD/JPY longs but just not yet – ForexLive

Synopsis:

Goldman Sachs has analysed the recent USD/JPY sell-off and expects a stabilisation near the 150 level, outlining a cautious approach to re-entering long positions.

Key Point:

1. Recent USD/JPY movements:

   • decline: USD/JPY has fallen nearly 10 from a peak of around 162 in early July.
   • factor: This big move was driven by a combination of factors that were favorable for the stronger yen.

2. Current outlook:

   • Avoid going long for now: Despite the recent sharp decline, Goldman Sachs is not recommending taking a long position anytime soon.
   • Support Level: The firm expects USD/JPY to continue to rally back towards the 150 level.

3. Factors limiting the appreciation of the yen:

   • US recession risk: Unless the risk of a US economic recession increases, sustained appreciation of the yen is likely to be limited.
   • Federal Reserve Response: To support further appreciation of the yen, the Fed will likely need to implement additional rate cuts.

4. Bank of Japan policy expectations:

   • Potential actions by the Bank of Japan: Goldman Sachs economists expect the Bank of Japan to raise interest rates and reduce its bond purchases, which could put further downward pressure on the USD/JPY.
   • Impact assessment: The impact of the BOJ’s move is likely to be short-lived unless the Fed surprises with a rate cut shortly after, which is seen as unlikely.

5. Strategic Positioning:

   • Long-term perspective: Goldman Sachs maintained its three-month USD/JPY forecast at $155, citing still-solid US economic growth and supportive risk sentiment.
   • Timing of renewal: The firm is exploring opportunities to re-enter long positions in USD/JPY, but prefers to wait for a more favorable entry point.

Conclusion:

Goldman Sachs remains cautious about immediately reopening its long USD/JPY position given the recent sharp drop and the possibility of further decline to the 150 yen level. However, it sees limited room for the yen to continue strengthening absent increased risks of a US recession or further Fed rate cuts. The firm maintains its 3-month outlook for USD/JPY at 155 yen and will look for better opportunities to reopen its long position.

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