USD/JPY Forecast to Keep Rising by Analysts at Morgan Stanley

USD/JPY is in a strong uptrend as the Dollar gains following the US election, it is now forecast to break above 110.00 and move higher, by several key analysts.

A move above the 107.49 highs is expected to confirm a rise to 112.00, according to Morgan Stanley.

The rise is expected to come from rising bond yields, and a steepening curve, which is forecast to lead to Japanese yen weakness.

“The correlation between global bond markets is high, meaning the US 2s10s curve hitting the highest level this year has spilled over into the Japanese curve steepening too.

“Steepness has been focused on the shorter end of the curve (<10y) as the BoJ's QE purchases are likely to be largest here, adding to JPY weakness,” said the note from Morgan Stanely.

An expected rise in Japanese bank profitability, when it follows the rise in the US, is expected to lead to more upside for USD/JPY as it weighs on the yen, due to an increase in capital exported abroad.

“Japan's TOPIX banks index still doesn't reflect this new curve dynamic and has been underperforming US banks.

“Japan's 3Q GDP beating market expectations, rising by 0.5%Q (0.2%Q expected) due to stronger net exports, suggests that a recovery is under way here, which counterintuitively is negative for the currency as more capital is exported abroad.

“Japan's 10y real yield falling from -0.28% for -0.47% today while US real yields rise has supported USDJPY too,” concludes the note.