Morgan Stanley: If the Federal Reserve cuts interest rates, the yen could appreciate by nearly 10% in the coming months.
2025-11-25 03:54:37
Strategists at Morgan Stanley say the yen could appreciate nearly 10 per cent against the dollar over the next few months if the Federal Reserve cuts interest rates in a row amid growing signs of a US slowdown. The dollar/yen is currently out of fair value, and if that relationship returns, the US-Japan exchange rate will fall in Quarter 1 2026 as lower Treasury yields could depress fair value, strategists including Matthew Hohenbach write. They note that "at the same time, Japan's fiscal policy is not particularly expansionary" and expect the yen to come under renewed downward pressure as the US economy recovers in the second half of next year and demand for carry trades picks up. Morgan Stanley expects USD/JPY to fall to around 140 in Quarter 1 of 2026, before recovering to around 147 by the end of the year.
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