The yen may have surged since the Bank of Japan shifted to a negative interest rate policy in January, but the Japanese currency is set to weaken ahead, Goldman Sachs said.
While the markets interpreted the BOJ's moves as a signal that the central bank was out of bullets, "We strongly disagree," Goldman said in a note titled "The yen: Why it's wrong to be long," dated Friday. "Fundamentally, we think this is about whether the BOJ is backing away from its 2 percent inflation target and we see no indication – whatsoever – that this is the case."
The BOJ blindsided global financial markets on January 29 by adopting negative interest rates for the first time, amid pressure to revive growth in the world's third-largest economy as it struggled to create inflation. The move aims to motivate banks to both lower lending rates and lend more by charging banks to hold their reserves with the central bank.
In the wake of the decision, the yen surged. Before the decision, the dollar was fetching more than 120 yen, compared with around 112.86 yen on Monday.