Goldman Sachs has cut its USD/JPY exchange rate forecast, stating that Japan's improved domestic policy environment, combined with the possibility of Japanese capital repatriation back to home assets, has strengthened the case for buying the yen.

Strategist Karen Reichgott Fishman's latest projections: a three-month USD/JPY target of 158, a six-month target of 155, and a twelve-month target of 150; previously forecast at 162, 163, and 165 respectively.

In her research note, she wrote: "Taken together, the appeal of going long the yen has increased, particularly as a hedge against the risk of recession concerns emerging."

The Bank of Japan's accelerated pace of rate hikes helps offset the inflationary impact of expansionary fiscal policy, while the likelihood of Japanese investors shifting their portfolios back to domestic assets has risen.

A shift in portfolio capital flows remains largely speculative at this point, but the increased probability of this scenario adds downside risk to USD/JPY and makes the yen a more attractive portfolio hedging tool.

Goldman Sachs also believes that the potential threat of further Japanese foreign exchange intervention will cap upside room for USD/JPY.

In the near term, Goldman Sachs maintains a cautious tactical stance, preferring to short EUR/JPY.