Goldman Sachs, the longtime JPY Short Seller, said a reversal is expected to strengthen the Japanese currency next year.
The slowdown in US growth, higher volatility in financial markets, and the prospect of less stimulus from the Japanese central bank mean that the yen will gradually rise to 108 per dollar over the next 12 months.
"A more challenging global risky environment is argued for a more constructive point of view in 2019," Goldman writes. "We have found that lower US growth and greater volatility in the market tend to take advantage of the yen, even when the Fed increases its rates faster than expected."
While Goldman's economists are not expecting any major changes next year, Bank Of Japan may be hinting at its intention to further reduce the cash benefit in the future. Commenting on a speech Monday, BOJ governor Haruhiko Kuroda said the central bank is determined to pursue its current relief policy.
Moreover, trade talks between the United States and Japan could "increase the White House focus" on the weakness of the JPY, considering that the currency remains on the US Treasury Department's list of monies.
Charts: Used with permission of Bloomberg Finance L.P.
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