Synopsis:

Morgan Stanley outlines where their forecasts diverge from consensus, with a more bullish outlook on JPY and key rates and a more bearish view on the USD. Their positioning reflects expectations for dovish Fed actions, BoJ hikes, and potential tariff risks.

Where Morgan Stanley Is More Bullish than Consensus:

1. USD/JPY:

   • Stronger JPY Outlook:
     Morgan Stanley expects 75bp of Fed cuts in 2025, which is more dovish than market pricing, and forecasts the BoJ hiking rates by 50bp next year. Both factors point to a stronger Japanese yen.

2. Rates in US, Germany, UK, and Japan:

   • Lower Global Rates:
     Below-consensus rate targets stem from a dovish outlook for cuts by the Fed, BoE, and ECB in 2025.
     • In Japan, Morgan Stanley expects two hikes next year but notes that the BoJ might pause if yen strength significantly suppresses inflation.

Where Morgan Stanley Is More Bearish than Consensus:

1. USD:
   • Weaker Dollar Outlook:
     • A dovish Fed easing cycle in 2025 underpins Morgan Stanley's lower USD target.
     • Expected pricing of tariff escalation risks by 1Q25 limits further upside for the dollar.

Conclusion:

Morgan Stanley's bullish stance favors a stronger JPY and lower global rates, while its bearish view targets USD weakness due to dovish Fed expectations and waning tariff-driven dollar support. These positions reflect a broader divergence from market consensus on monetary policy and currency dynamics in 2025.