Morgan Stanley Recommend Long USD/JPY Position

Morgan Stanley write “our economists continue to expect inflation to peak out this January, with continuing price hikes in the food sector likely to be more than offset by: (1) a significant reduction in household electricity and gas bills, as government subsidies are paid out; and (2) the lagged impact of previous declines in import prices.”

• “As for the wage growth outlook, they currently expect this spring’s annual negotiations to result in base-pay hikes of just 1.2% (or thereabouts) for a total wage increase of around 2.8% after previously scheduled periodic increments are included. Such an outcome would likely see markets reduce their BoJ normalization-premised positions yet further amid insufficient evidence of wage-driven inflation (particularly in the services sector).”
• “This is why we turn bullish on JPY duration, and bearish on JPY via long USD/JPY.”
• They recommended entering a long USD/JPY position at Y136.20 with a target of Y142.00 and stop at Y132.00.