Morgan Stanley turns neutral on dollar with bullish skew, stays bearish on yen
Morgan Stanley's recent shift to a neutral view on the US dollar with a bullish skew indicates a preference for buy-the-dips strategies, especially in light of potential energy shocks and risk aversion. This transition follows their previous underestimation of dollar strength, as outlined in a recent commentary, where they highlight that any dollar weakness could be fleeting ('Per the full note ...'). Furthermore, their bearish outlook on the Japanese yen suggests continued support for USD/JPY, which could press against intervention thresholds by the Bank of Japan (BoJ). Currently, USD/JPY hovers around 155.81, close to the upper range of current market expectations, where intervention risks are heightened.
What the desk is arguing
Morgan Stanley's neutral stance on the dollar, coupled with a bullish skew, shifts their strategy towards buying dips, particularly as external factors such as rising energy prices and risk aversion come into play. According to the note, this renewed perspective comes just two weeks after a review where the strategists acknowledged their earlier weak-dollar forecast was incorrect.
To support their view, Morgan Stanley points to the implications of Japanese yen weakness and how this reinforces their bearish outlook. They indicate that if USD/JPY approaches the upper end of its range, the potential for intervention by Japanese authorities rises, especially since US officials have marked yen weakness as a concern. The current spot at 155.81, poised near significant intervention risk levels, underscores this positioning.
Where it sits in our coverage
Our consensus target for USD/JPY stands at 154.0, with firm spreads ranging from 149.0 for Commerzbank to 161.7 from TMGM. Specific Dec-26 targets include:
- Rabobank: 145.0
- Nomura: 165.5
- Barclays: 149.0
This outlook aligns closely with the consensus, though it leans towards the higher end of expectations given the prevailing market dynamics, notably the intervention threshold considerations by the BoJ.
How other firms see it
In line with Morgan Stanley's view, several firms like RBC and SocGen maintain bearish outlooks on the yen, with targets around 156.0 and 158.0 respectively for Dec-26. Conversely, Commerzbank is among the contrary views, forecasting a more significant drop to 149.0.
The implications of Japanese monetary policy and potential market interventions make the trajectory of USD/JPY critical, particularly with the current energy market volatility playing an integral role in shaping FX positioning in the near term.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Morgan Stanley adopts a neutral view on the dollar with a bullish skew, favoring buy-the-dips.
- 02The bearish stance on the yen suggests USD/JPY's range is crucial as intervention risks rise.
- 03Strength in energy prices could bolster the Norwegian krone against the euro and Swedish krona.
- 04Recent shifts in positioning reflect a broader reconsideration of dollar strength after a weak payroll report.
Market implications
Traders should monitor USD/JPY closely as it approaches the upper bounds of the trading range, particularly around 156. The potential for BoJ intervention and shifts in energy prices are also factors that could influence market movements.
Risks to this view
A significant catalyst that could invalidate this bullish dollar view includes a strong rebound in economic indicators or shifts in US labor data, which could shift expectations around Fed policy tightening. Additionally, unexpected actions from the Bank of Japan to counteract yen weakness could rapidly alter market dynamics.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bullish | 145.00 |
Citi | Bearish | 160.00 |
Crédit Agricole | Bullish | 156.00 |
Morgan Stanley's buy-the-dips approach suggests that any dollar weakness may prove short-lived, especially if energy prices or risk aversion rise again. The bearish yen view keeps USD/JPY near the upper end of its range in focus, where the risk of Japanese intervention rises, particularly with US officials flagging yen weakness. Favouring the krone over the euro and Swedish krona ties FX positioning directly to the oil outlook, making Norwegian currency a beneficiary if Middle East supply concerns flare again.
For the euro, the call adds to pressure from widening French spreads and Europe's exposure to energy costs. --- Two weeks after admitting it was wrong on the dollar, Morgan Stanley has dialled its bullish call back to "buy the dips", while sticking with the trades that work in an energy shock. Summary: Morgan Stanley's view on the US dollar is now neutral with a bullish skew, and it is looking for dips to buy. The bank remains bearish on the yen, saying carry trades are likely to keep supporting USD/JPY.
It favours long Norwegian krone positions against the euro and Swedish krona as a hedge against higher energy prices. In late September, its strategists admitted their weak-dollar forecast had been wrong and raised their dollar forecasts. A weak September US payrolls report has since cut expectations for an October Fed hike.
Morgan Stanley has moved to a neutral view on the US dollar with a bullish skew, saying it is looking for dips to buy, while staying bearish on the Japanese yen and favouring the Norwegian krone against the euro and Swedish krona as a hedge against higher energy prices. The stance marks a step back from the more outright dollar-bullish view the bank's currency strategists adopted less than two weeks ago. In a note in late September, a team led by David Adams conceded that their earlier forecast of a weaker dollar had been wrong.
They had expected US interest rates to converge with those abroad as the Federal Reserve stayed on hold, but elevated energy prices, robust US data and a more hawkish Fed instead pushed markets to price rate hikes, lifting the dollar. At the time, the bank raised its year-end forecast for the dollar index to 102 and cut its euro forecast to 1.12 against the dollar, while projecting further dollar gains into mid-2027 as fiscal and political concerns weighed on Europe. Much has changed since.
A weak September US payrolls report last week sharply reduced expectations for an October Fed hike, removing some of the near-term support behind the dollar rally. The latest neutral stance with a bullish bias appears consistent with that shift, keeping the broader case for dollar strength intact while favouring buying on weakness rather than chasing gains. The yen view is a continuation of the bank's existing position.
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Cross-firm research
USD/JPY Consensus Check: Spot at 158.02, Target 154.0 — Week of October 5, 2026
USD/JPY trades 2.61% above the 24-firm Dec-26 median of 154.0, with a 25.5-point dispersion range signalling deep disagreement on the BoJ-Fed spread path.
USD/JPY Consensus Check: Spot at 157.87, Median Target 154.0 — Week of October 4, 2026
USD/JPY trades 2.51% above the 24-firm median Dec-26 target of 154.0, with a 25.5-point dispersion range signalling deep disagreement on the BoJ-Fed spread path.