Morgan Stanley: Retaining our call for a BOJ hike in January

Morgan Stanley reaffirms its forecast for the Bank of Japan (BoJ) to hike rates in January 2025, aligning with their broader strategy that includes expectations for Federal Reserve rate cuts. They emphasize that the recent yen appreciation aligns with their projections based on interest rate differentials.

Key Points:

1. BoJ Hike Expected in January:

   • Morgan Stanley maintains its forecast for a BoJ rate hike in January 2025, despite recent market volatility.
   • The firm’s FX strategy has consistently predicted yen appreciation driven by a combination of Fed rate cuts and BoJ hikes.

2. Recent Yen Appreciation:

   • The recent rapid appreciation of the yen is seen as a move closer to Morgan Stanley’s target levels, which are based on expected interest rate differentials.
   • This aligns with their long-standing view that BoJ rate hikes and Fed cuts will lead to yen strength.

3. Focus on Fundamentals:

   • While acknowledging market attention on these developments, Morgan Stanley stresses the importance of underlying fundamentals.
   • They anticipate that real rates in Japan will remain negative through the end of 2025, even with the expected rate hike.

Conclusion:

Morgan Stanley remains confident in its forecast for a BoJ rate hike in January 2025, which is expected to further support yen appreciation. The firm continues to focus on fundamental factors, predicting that Japan’s real rates will stay negative through 2025 despite the anticipated policy changes.

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This article was written by Adam Button at www.forexlive.com.