Goldman Sachs expects the Bank of Japan (BoJ) to make adjustments to the Yield Curve Control (YCC) at their upcoming meeting. However, the bank foresees a limited appreciation of the Yen following this adjustment, attributing the potential restraint to non-recessionary US growth, a backdrop of lower rate volatility, and anticipated reversal of cuts priced for the Federal Reserve over the next year.
Key Points
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BoJ YCC Adjustment: Goldman Sachs predicts that the Bank of Japan will make adjustments to the Yield Curve Control at its forthcoming meeting.
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Limited JPY Appreciation: Despite the potential policy adjustment, the bank anticipates only a modest appreciation of the Yen.
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Macroeconomic Forecasts: Goldman’s broader macro forecasts indicate that the market sentiment will likely be buoyed by non-recessionary US growth and reduced rate volatility.
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Fed Rate Cuts: The cuts that are currently being priced for the Federal Reserve over the next year are expected to be reversed, further impacting the potential movement of the Yen.
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Requirement for Significant JPY Rally: A more pronounced rally of the Yen would require a substantial policy shift by the BoJ, such as moving towards ending the Negative Interest Rate Policy (NIRP).
Summary
Goldman Sachs anticipates that the Bank of Japan will adjust the Yield Curve Control at their upcoming meeting. Nevertheless, the bank predicts only a limited appreciation of the Yen in response to this move. This restrained outlook is attributed to Goldman’s broader macroeconomic forecasts, which suggest non-recessionary US growth, reduced rate volatility, and a potential unwinding of anticipated Federal Reserve cuts over the coming year.
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