Morgan Stanley went short USD/JPY on.....>

DOLLAR-YEN: Morgan Stanley went short USD/JPY on Wednesday, entering the

position at Y107.62, with a target of Y101.00 and a stop at Y108.70.

- MS noted that "with hindsight, our aim of selling USD/JPY on a bounce to

Y109.20 may have been too optimistic. The continued deterioration in global

economic data and fall in inflation expectations, generating higher real yields

and tightening financial conditions further, suggests USD/JPY is likely to trade

lower from here. Indeed, the global manufacturing PMI has turned contractionary

for the first time since 2016. Meanwhile, the outlook for risk assets continues

to darken, with 2Q earnings season likely to generate greater pessimism about

corporate profitability in the US. These factors suggest a lower and steeper US

yield curve as the Fed responds, which should reduce the attractiveness of US

assets but also increase the incentive for Japanese investors to add to their FX

hedges as FX-hedged yields rise. The key risk to the trade is the global

economic data improve, suggesting higher US rates and a higher USD/JPY."