Goldman Sachs: If the yen-to-dollar exchange rate rises to 130, the Bank of Japan may consider stopping interest rate hikes

Goldman Sachs analysts suggest that if the yen-to-dollar exchange rate rises to 130, the prospect of sustained inflation in Japan becomes bleak and the Bank of Japan may consider pausing interest rate hikes. Akira Otani, a leading economist at Goldman Sachs, wrote that a significant appreciation of the yen could squeeze profits for Japanese exporters, lower import prices, suppress domestic investment and weaken wage growth, posing challenges for the Bank of Japan's continued tightening policy. They also said that if the yen strengthens against the dollar to a low level above 130, The Bank of Japan might reduce its inflation forecast for fiscal year 2026 to around 1.5%, below its target of 2%. Conversely, if the yen falls below 160 - which triggered an interest rate hike by The Bank of Japan last July - The Bank may consider further advancing or accelerating interest rate hikes.