Goldman Sachs lowered its dollar-yen forecast, saying Japan's domestic policy environment has improved and the possibility of Japanese capital flowing back home has made the case for holding more yen stronger. According to Sina Finance, strategist Karen Reichgott Fishman now sees dollar-yen at 158 in three months, 155 in six months, and 150 in 12 months, down from prior forecasts of 162, 163, and 165.

She wrote in a research note that the appeal of going long yen has increased, especially as a hedge against recession fears. Goldman Sachs also said faster rate hikes by the Bank of Japan would help offset the inflation impact of expansionary fiscal policy, while the potential for Japanese investors to shift portfolio assets back home has risen.

The bank said portfolio capital-flow shifts remain largely speculative for now, but the probability of that scenario has increased, adding downside risk to dollar-yen and making the yen a more attractive portfolio hedge. Goldman Sachs also said the potential threat of further foreign-exchange intervention by Japan would limit upside for dollar-yen. In the short term, it maintained a cautious tactical stance and preferred short euro-yen.