Goldman Sachs has revised its 12-month forecast for the yen to 165 per dollar, down from a previous target of 155, marking one of the most bearish outlooks on the Japanese currency. The adjustment, reported by Bloomberg and cited across financial centres, comes as the yen trades around 162.3, within striking distance of last week’s 162.84 low—its weakest level since 1986. Strategists at the bank now also see the currency at 162 in three months and 163 in six months, reflecting a view that depreciation pressures will persist.

The core mechanism remains the wide interest-rate differential between Japan and the United States. While the Bank of Japan raised its policy rate to 1% in June—the highest since 1995—the Federal Reserve holds its benchmark at 3.5–3.75%. Goldman Sachs strategist Karen Reichgott Fishman pointed to Japan’s fiscal challenges, elevated US Treasury yields, and the BoJ’s gradual pace of tightening as factors that will continue to weigh on the yen, even though the bank assesses the currency as “extremely undervalued.” In London, analysts note that the dollar has steadied after its worst weekly performance since April, as a sharp slowdown in US job growth and softer oil prices have curbed expectations of a near-term Fed rate hike.

From Tokyo, the threat of official intervention has kept traders on edge, though market participants in Singapore and elsewhere doubt that unilateral action can reverse the trend. OCBC strategists argue that without a meaningful shift in macroeconomic fundamentals, verbal warnings and direct yen buying are likely to produce only temporary corrections. Japanese authorities appear to be shifting tactics, signalling a more targeted campaign to squeeze speculators rather than telegraphing moves in advance. Hedge funds have built the largest short yen positions since 2017, and options markets price a 76% probability of the currency hitting 165 by mid-2027.

The dollar’s broader trajectory now hinges on the Federal Reserve’s policy signals. Investors are focused on the minutes of the FOMC’s June meeting, due Wednesday, for clues on the rate outlook under new Chair Kevin Warsh, who has cautioned that markets may be “disappointed” if they expect the central bank to ease off on inflation. Viewed from Washington, the still-tight labour market—highlighted by a declining unemployment rate—keeps tightening expectations intact, even as the dollar index retreats from a 13-month peak. The next factual milestone is the release of those minutes, which will shape near-term dollar-yen dynamics and the calculus for any Japanese intervention.