① Morgan Stanley The forecast is that the USD/JPY exchange rate may depreciate by nearly 10% in the coming months due to the possibility of consecutive interest rate cuts by the Federal Reserve; ② The recent weakness of the yen has raised concerns among investors that the Japanese authorities may take intervention measures; ③ However, Morgan Stanley remains bullish on the yen, predicting that the USD/JPY exchange rate will reach 140 in the first quarter of 2026.
Morgan Stanley strategists say that with signs of a slowdown in the U.S. economy, the Federal Reserve is likely to cut interest rates in succession, and the dollar is expected to depreciate by nearly 10% against the yen in the coming months.
Morgan Stanley strategists Matthew Hornbach and others wrote in a report on Sunday (November 23) that the dollar could fall by nearly 10% against the yen in the coming months as the dollar reverts to the fair value implied by interest rates, coupled with the fact that US rate cuts would lead to a decline in the fair value itself.
The bank also noted that "Japan's fiscal policy is not particularly loose. With the US economic recovery and increased demand for carry trades, the yen is expected to face renewed downward pressure in the second half of next year."
The bullish forecast for the yen has come true.
The yen has recently shown signs of weakness, mainly due to concerns that Prime Minister Sanae Takaichi's fiscal spending policy is too loose. Market participants believe that Takaichi's plans will worsen Japan's fiscal situation and weaken expectations for a near-term interest rate hike by the Bank of Japan. As of press time, the USD/JPY exchange rate was 156.72.
With the yen's exchange rate hovering around 157 recently, investors are worried about whether Japanese authorities will intervene to stabilize the market.
On this issue, Japanese Finance Minister Satsuki Katayama recently expressed concern about the weakness of the yen, specifically mentioning the possibility of intervention; however, her comments so far have had a limited impact on the market.
Japanese Minister of Economic and Fiscal Policy Minoru Jonouchi said earlier on Tuesday (November 25) that the government is closely monitoring exchange rate fluctuations, including speculative activities, and is taking a very urgent stance.
Nevertheless, Morgan Stanley maintains its bullish forecast for the yen. Although the yen fell 5.6% against the dollar this quarter, the worst performing currency among the G10, the bank still predicts the dollar/yen exchange rate will fall to around 140 yen to the dollar in the first quarter of 2026, before recovering to around 147 yen to the dollar by the end of next year.
Furthermore, regarding interest rates, Morgan Stanley predicts that the yield curve for Japanese government bonds will steepen in the first quarter of 2026, driven by a slowdown in the US economy and easing fiscal concerns.
(Article source: CLS)
