Goldman Sachs Bullish on Structural Yen Appreciation, Morgan Stanley Warns of Policy Disappointment Risks
nashnova research
The yen surged roughly 3% in just a few trading sessions. Goldman Sachs argues the structural undervaluation unwind 'may have only just begun,' while J.P. Morgan warns that rate-hike expectations are already overheated — and a policy miss could reverse the rally.
Why did the yen suddenly jump 3%?
Two drivers fired at once: rising expectations for a Bank of Japan rate hike + GPIF — Japan's Government Pension Investment Fund, the world's largest pension pool — potentially shifting more money back into domestic assets.
The yen weakened for years because the U.S. economy stayed strong and the U.S.–Japan rate gap kept widening, pulling capital toward the dollar.
This means → this rally is not just short-term speculation. The two forces that kept the yen cheap — low rates and capital outflow — are both showing cracks at the same time.
Why does Goldman say "the unwind may have only just begun"?
Goldman's view: the BOJ policy pivot plus a potential GPIF reallocation are weakening the structural headwinds — and may even turn them into tailwinds.
In plain terms = the yen was cheap for good reasons (wide rate gap, money leaving Japan). Those reasons are now breaking down one by one.
On GPIF, Goldman cites 2020: the fund officially announced its foreign-bond target change in late March, but capital flows appeared as early as January–February — the actual money moved well ahead of the formal announcement.
Goldman is watching the September 7 release of August international securities transaction data for early signs of GPIF rotation.
What is J.P. Morgan worried about?
GPIF held a management committee meeting on August 21 — the first August meeting in seven years. A basic-portfolio review that concluded "no change needed" back in March has been reopened.
This means → GPIF is clearly reassessing, but J.P. Morgan believes the near-term move is more likely a tweak within the existing allocation bands, not a formal change to the basic portfolio — the fund's long-term asset-ratio framework.
If GPIF did push to the band ceiling: domestic bonds from 26.91% to 31% + Japanese equities from 23.81% to 31% would translate to roughly ¥33.8 trillion in yen buying — but only if the framework is formally changed, which hasn't happened yet.
Have rate-hike expectations already gone too far?
A September BOJ hike is nearly fully priced in. The 1Y1Y swap rate has climbed to about 2.13%, implying a tightening pace even faster than J.P. Morgan's own forecast.
This reflects a market that has run ahead of the central bank — if expectations start to cool, the yen could come under pressure instead.
Put simply = the market has already baked in "a hike is certain." If the BOJ hesitates, yen longs get squeezed in reverse.
Why is J.P. Morgan turning bullish on the dollar instead?
J.P. Morgan sees the dollar as undervalued by roughly 3%–4% relative to rate differentials, arguing that U.S. economic resilience is not fully reflected in the exchange rate.
Key data point: U.S. unemployment sits at 4.1%, below the Fed's own year-end projection of 4.3%.
Under a scenario where the Fed hikes only once this year, the dollar's yield would still top more than 50% of global currencies — near a 25-year high. Three hikes would push that share to about 58%.
What comes next?
September 11: U.S. August CPI — the single most important near-term variable.
Three major central banks then line up back-to-back: the Fed FOMC on September 16, the Bank of England on September 17, and the BOJ on September 18 — policy expectations could be repriced aggressively within a single week.
This means → whether the yen-long thesis holds comes down to whether the BOJ hike and GPIF reallocation actually materialize — expectations alone are not enough.
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