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Koichi Sugisaki, Executive Director at Morgan Stanley MUFG Securities, recommends taking a short position on USD/JPY, forecasting a convergence in the US-Japan interest rate differential. With the deceleration in US inflation now confirmed, the risk-reward profile for such transactions in the near term becomes increasingly favorable. Should the Trump administration refrain from immediate tariff hikes, market anticipation of further Federal Reserve rate cuts and the Bank of Japan's sustained policy normalization efforts will contribute to the narrowing of the interest rate differential between the US and Japan. Amid the uncertainty regarding the policies of the new Trump administration, the demand for yen-funded carry trades is anticipated to remain muted.
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