Morgan Stanley analysts project the USD/JPY exchange rate to reach 163 by late July 2026. Currently trading around 154, the forecast suggests a 6% decline for the Japanese currency. Strategists Koichi Sugisaki, David Adams, and Andrew Watrous advise clients to go long on the dollar-yen pair with a stop-loss at 150.
The bank attributes the recent yen rally to the unwinding of carry trades and speculation regarding the repatriation of holdings by the Government Pension Investment Fund. Morgan Stanley argues that the interest rate differential between the US and Japan remains wide enough to keep carry trades profitable for investors.
The Bank of Japan maintains its policy rate at 1%. Morgan Stanley forecasts rate hikes to 1.25% in October 2026 and 1.5% by March 2027. Despite these adjustments, the bank maintains that the slow pace of tightening from a low base will continue to favor yen weakness.
The 163 target aligns with a previous intervention threshold observed in late July 2026. According to a report dated September 8, 2026, the bank views recent market positioning as an opportunity for traders to rebuild short positions on the yen, provided the USD/JPY rate remains above the 150 stop-loss level.
