Morgan Stanley: If the Fed cuts interest rates, the yen may appreciate by nearly 10% in the coming months.

[Morgan Stanley: If the Fed Cuts Rates, the Yen May Appreciate Nearly 10% Over the Next Few Months] Morgan Stanley's strategists stated that if the Fed continues to cut rates amid increasing signs of a slowdown in the U.S. economy, the yen is expected to appreciate nearly 10% against the dollar over the coming months. Strategists, including Matthew Hornbach, wrote that the dollar/yen has currently deviated from fair value, and if this relationship returns, the USD/JPY exchange rate is expected to fall in the first quarter of 2026, as declining U.S. Treasury yields may suppress fair value. They noted, “Meanwhile, Japan's fiscal policy is not particularly expansionary,” and they anticipate that as the U.S. economy recovers in the second half of next year and demand for carry trades increases, the yen will again face downward pressure. Morgan Stanley expects the dollar/yen to fall to around 140 in the first quarter of 2026, before rising to about 147 by the end of the year. (Jin10)