Currency strategists at Morgan Stanley believe that although the greenback didn’t manage to break above 84.00 on Wednesday and retreated lower versus Japanese yen, the pair USD/JPY can rise by the end of the first quarter to 86.00 and finish the year at 93.00.

Such forecast is based on the expectations that the yield spreads between US and Japan’s bonds will widen helped by the American economic recovery. As a result, Japanese investors will turn to abroad looking for higher yield than those available at the domestic market and the demand for yen will weaken.

In the short term, however, USD/JPY will be trapped in its range as US money supply is growing too rapidly and US interest rates are too low, while the real yen’s rate is not as strong. According to Morgan Stanley, yen will be driven in the coming weeks mainly by the global risk environment and investors’ sentiment about the US currency.



Chart. Daily USD/CHF

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