Goldman Sachs expects the yen to approach the 160 level as market concerns about Japan's future spending path increase

Goldman Sachs published a report indicating that the Liberal Democratic Party's overwhelming victory in the Japanese elections clearly shows market support for the new government's direction, including increased fiscal spending. A greater governing mandate is likely to intensify market concerns about future spending plans, leading to a new round of weakening in Japanese government bonds and the yen, unless the Bank of Japan shifts to a faster pace of interest rate hikes. Therefore, the bank believes the fiscal impact has not yet been fully reflected in the market.

The bank expects the USD/JPY to approach or even break the 160 level, as the market gradually digests the election results and the full impact of Prime Minister Kishida Fumio's governing mandate. However, if authorities counteract through rate checks or actual intervention, this round of yen depreciation may only be temporary and could even be prematurely halted