Fed Changes Currency Rate: Morgan Stanley Analysts Forecast Yen Appreciation of Nearly 10%

LidoStakeAddict · 2026-01-12T11:10:53+00:00

Morgan Stanley predicts that interest rate cuts by the Federal Reserve could significantly alter currency market dynamics, particularly undervaluing the USD/JPY pair. Analysts foresee a potential drop to around 140 by Q1 2026, driven by falling US Treasury yields, followed by a rise to about 147 later that year due to an economic rebound.

LidoStakeAddict

2026-01-12 11:10:53

Abstract generation in progress

According to Morgan Stanley strategists’ forecast, the scenario of interest rate cuts by the Federal Reserve could drastically change the dynamics in the currency market. Experts, including Matthew Hornbach, point to significant undervaluation of the USD/JPY pair relative to its actual fundamental value.

Undervalued Currency Pair

The current USD/JPY exchange rate position deviates significantly from its fair valuation. If this discrepancy is corrected, strategists expect a sharp decline in the pair in the first quarter of 2026. The main factor will be decreasing yields on US Treasury bonds, which will directly impact the weakening of the dollar. Over the next few months, the yen could strengthen by nearly 10% against the US dollar.

Fiscal Policy and Economic Outlook

Japan’s fiscal strategies do not show particular expansionism, which provides an important backdrop for the forecasted strengthening of the yen. Morgan Stanley notes that interest rate cuts by the Fed will be a key catalyst for this scenario.

Long-term Forecast

Analysts predict that the USD/JPY rate will fall to around 140 in the first quarter of 2026. However, forecasts for the longer term show a trend change – by the end of 2026, the rate could rise to about 147. This turnaround will be driven by an economic growth revival in the US in the second half of the year and the return of carry trade demand, which will again exert downward pressure on the yen.

The change in US interest rates will thus determine key movements in the currency market in the coming year.

View Original

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.