Is the Yen reversal imminent? Both Morgan Stanley and Bank of America are optimistic about the USD/JPY target falling to 140 by 2026.

A rare consensus has emerged in the market—multiple Wall Street giants are turning bullish on the yen’s appreciation prospects.

According to the latest survey, among approximately 170 fund managers interviewed by Bank of America, nearly one-third expect the yen to be the best-performing major currency next year. Their logic is straightforward: the yen is currently severely undervalued, and with potential intervention by the Japanese government and central bank, this currency depreciation pattern is unlikely to continue.

Morgan Stanley’s strategists have provided specific forecast data. If the Federal Reserve continues to cut interest rates amid increasing signs of an economic slowdown, the USD/JPY exchange rate could strengthen by nearly 10% over the coming months. A more aggressive view suggests that by Q1 2026, USD/JPY could fall to around 140, then rebound to the 147 range before the end of the year.

What are these forecasts based on? Morgan Stanley analysts, including Matthew Hornbach, point out that the current USD/JPY price has already deviated significantly from its fundamental fair value. Once the market completes its re-pricing, especially driven by declining U.S. yields, the exchange rate will naturally move closer to the 140 level.

It is worth noting that Japan’s new Prime Minister, Sanae Takaichi, has introduced a proactive fiscal policy package, but overall, it is not considered particularly aggressive in terms of expansion. In contrast, the Federal Reserve’s policy shift appears more pronounced—by November 25, market pricing for a rate cut in December has risen to 80%. This disalignment between U.S. and Japanese monetary policies is the core driver behind the yen’s appreciation logic.

However, Morgan Stanley also warns that after the second half of 2026, as the U.S. economy gradually recovers, the demand for arbitrage trading may re-emerge, and the yen could face downward pressure again. This suggests that the best window for yen appreciation might be in the first half of 2026.

Currently, the USD/JPY quote is around 156.60. According to Morgan Stanley’s roadmap, this implies that the yen still has about 10% upside in the short term.