Goldman Sachs remains skeptical that recent yen support and de-dollarization talk pose a real threat to the dollar’s dominance, pointing to wide rate differentials and a lack of credible alternatives.
Despite a fresh bout of coordinated intervention that briefly lifted the Japanese yen this week, Goldman Sachs is standing firm on its view that the US dollar’s dominant position in global finance isn’t going anywhere anytime soon. The bank’s strategists argue that recent currency moves and mounting chatter around “de-dollarization” don’t change the underlying fundamentals keeping the dollar in the driver’s seat.
The Yen Gets a Temporary Lift
The yen rallied sharply earlier this week, climbing as much as 1.4% against the dollar during Monday trading in Tokyo, following what traders widely interpreted as coordinated intervention between US and Japanese authorities. The move came just days after the yen had been hovering near its weakest levels since 1986, with USD/JPY testing levels close to 164.
Goldman strategists, including Kamakshya Trivedi, noted that further intervention remains likely if the yen begins giving back its recent gains, pointing to a similar pattern that played out earlier this year. The bank has previously described intervention as “an effective tool for authorities to buy some time” rather than a permanent fix, a distinction that’s become central to how Goldman is framing the broader currency picture.
Why Goldman Remains Bearish on the Yen Long-Term
Even with this week’s bounce, Goldman has not backed off its broader bearish stance on the yen. The bank recently raised its 12-month dollar-yen forecast to 165, up from an earlier projection of 155, citing a combination of persistently high US Treasury yields, low recession risk in the US, ongoing Japanese fiscal pressure, and a Bank of Japan that continues to raise interest rates only gradually.
Goldman strategist Karen Reichgott Fishman has pointed out that Japan’s fiscal stimulus plans could push domestic bond yields higher relative to US Treasurys, a dynamic that has historically coincided with further dollar strength against the yen rather than weakness. Between April and May of this year alone, Japan’s government reportedly spent more than 11 trillion yen trying to defend the currency — with limited lasting effect on the broader trend.
The bank has also highlighted how persistent yen weakness has fueled renewed appetite for carry trades, where investors borrow cheaply in yen and invest the proceeds in higher-yielding assets elsewhere, including riskier corners of the market like cryptocurrency. That dynamic tends to reinforce yen weakness rather than resolve it, since it keeps steady selling pressure on the currency.
Putting Dollar-Dominance Fears in Context
Zooming out from the yen specifically, Goldman’s broader message is that talk of the dollar losing its status as the world’s dominant reserve currency remains overstated, at least for now. The dollar still accounts for the majority of global foreign exchange reserves and is involved in the vast majority of currency trades worldwide, a position built on deep, liquid US financial markets that rivals simply haven’t matched.
Goldman has pointed out that no single currency has emerged as a credible full replacement. The euro lacks a unified fiscal policy backing it, the Chinese yuan remains constrained by capital controls, and gold, while attracting renewed interest from central banks, doesn’t offer the yield or liquidity needed to function as a true reserve currency replacement. Without a clear alternative ready to step into that role, Goldman argues that periodic dollar weakness — like recent yen strength — reflects short-term positioning and intervention dynamics rather than a structural shift away from the dollar.
What Could Actually Shift the Picture
According to Goldman, a genuine and lasting change in either the yen’s trajectory or the dollar’s global standing would likely require something more fundamental than intervention. On the yen specifically, the bank says a sustained recovery would probably need either a sharp slowdown in the US economy or a much more aggressive pace of rate hikes from the Bank of Japan — neither of which currently sits in Goldman’s base-case forecast.
On the dollar’s broader dominance, Goldman’s skepticism toward “de-dollarization” narratives echoes a similar theme: without deep, liquid alternative markets and coordinated global buy-in toward another currency, shifts in reserve holdings or gold accumulation by central banks are unlikely to meaningfully dent the dollar’s central role in trade financing, cross-border lending, and reserve allocation anytime soon.
The Bigger Picture for Investors
For traders and investors, Goldman’s stance suggests two things worth watching in tandem: continued volatility in USD/JPY driven by intervention risk in the near term, alongside a dollar that Goldman still expects to remain broadly well-supported over the medium term. That combination means yen-funded carry trades are likely to stay attractive as long as the underlying rate differential between the US and Japan remains wide — even if occasional bouts of intervention create short, sharp moves in the other direction.
Frequently Asked Questions
Q: Why did the yen rally this week? Traders widely believe coordinated intervention between US and Japanese authorities helped push the yen higher, after it had fallen close to its weakest levels against the dollar since 1986.
Q: What is Goldman Sachs’ dollar-yen forecast? Goldman expects USD/JPY to reach 165 within 12 months, up from an earlier forecast of 155, citing wide interest rate differentials and only gradual Bank of Japan tightening.
Q: Does Goldman think intervention can permanently support the yen? No. Goldman views intervention as a tool that can buy time and slow the yen’s decline, but says a lasting recovery would require either a US economic slowdown or significantly faster Bank of Japan rate hikes.
Q: Is the US dollar’s status as the world’s reserve currency actually at risk? Goldman remains skeptical of “de-dollarization” narratives, arguing that no other currency currently offers the combination of deep liquidity and market infrastructure needed to seriously challenge the dollar’s dominant global role.
Q: What is a yen-funded carry trade? It’s a strategy where investors borrow money in yen, which has low interest rates, and invest the proceeds in higher-yielding assets elsewhere. A weaker yen makes this strategy more attractive, since borrowers effectively repay their loans in a depreciating currency.
