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.