USD/JPY: Morgan Stanley says Trump victory suggests a long-term rally, buy short-term dips

Morgan Stanley believes that Trump's future policy should go in the direction of an increase in the USD/JPY on the forex in the medium-term and recommends buying short-term lows.

"The surprising US election suggests a short-term decline of the USD against low-yielding currencies, but we view these dips as a long-term buying opportunity.

President Trump - supported by the Congress and Senate - should change the composition of fiscal and monetary policy. The US fiscal approach could become more expansionary, which should make the nominal yield curve steeper, followed in the longer term by higher real rates.

The modification of the fiscal/monetary policy mix should make the rate curve more attractive for foreign flows, suggesting an increase of the USD/JPY.

Our favourite strategy is buying the USD/JPY and EUR/JPY."

Morgan Stanley holds long positions on the EUR/JPY.