The Japanese
But this has many people wondering if the recent sell-off has gone too far, at least in the near-term.
While he appreciates the concern that too many people may be "Yen-bearish" on an anecdotal basis, he isn't convinced it is really the case.
Indeed, based on proprietary models, O'Neill believes that the yen has much further to fall.
From his latest Viewpoints:
Before the holiday break, I discussed conceptually how one might appreciate the scale of what a 2% inflation world in Japan could mean, and now we have developed it a bit more rigorously in a chart which I have attached. The smooth yellow line shows the so-called Goldman Sachs Dynamic Equilibrium Exchange Rate (GSDEER) for $/Yen, and the erratic pink line shows the actual movement. As can be seen, despite the big decline since November, the Yen remains notably overvalued against the Dollar. The fresh dotted blue line depicts what the GSDEER might have been if Japan had been targeting – and achieving – 2% inflation for the past 20 years. Quite a change, right? So, in the context of noise versus signals, if Japan is going to target 2% inflation, and presumably be quite serious about it, I wouldn’t overly worry about positioning indicators. There is a difference between a consensus when it is correct and one that turns out to be wrong.
And from what I can see, not many people really believe that Japan is serious about this yet, in any case.
GSDEER is a model that O'Neill developed using the work of economist John Williamson.
"John Williamson, his pioneering research on Fundamental Equilibrium Exchange Rates (FEERs) contributed to my basic thinking in creating the GS Dynamic Equilibrium Exchange Rate(GSDEER) framework for FX determination," O'Neill told Business Insider.
Check out the chart. From the looks of it, the yen could fall a whole lot more.
 Goldman Sachs Asset Management |