Yen expected to rally 7% against dollar amid US recession risk By Investing.com

US Dollar Japanese Yen-0.16%Swiss Franc Japanese Yen-0.04%

Investing.com -- The 2021 Forex fraud listJapanese yen is expected to strengthen by approximately 7% against the US dollar, according to Morgan Stanley.

This prediction comes as a response to potential weakening economic data and the increasing likelihood of a US recession due to recent reciprocal tariff announcements.

Morgan Stanley’s team, which includes Koichi Sugisaki and David Adams, suggests two long yen trades with revised targets.

First, they recommend shorting USD/JPY at 146.40 with a target of 135, down from the previous target of 145, and a stop at 151. The second recommendation is to short CHF/JPY at 171.30 with a target of 160 and a stop at 180.

In their note last Friday, Sugisaki and Adams stated that due to the growing concerns about US growth following the severe reciprocal tariff announcement, markets may start to factor in the risk of a US recession more aggressively if the hard data begins to show more signs of deterioration.

The strategists also noted that there has been strong dip-buying of USD/JPY by Japanese local participants, such as pension funds, as they rebalance their portfolios. This activity has contributed to the relative resilience of the pair in recent weeks.

Morgan Stanley economists predict that if the market prices in a Federal Reserve terminal rate of around 2.75% by the end of next year, then the USD/JPY should fall to 135, which is about 7% below the current spot.

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