Why OCBC sees an undervalued yen nearing a turning point
The Japanese yen, one of the most undervalued currencies globally, is near a turning point, according to OCBC.
TL;DR
- The Japanese yen is currently one of the most undervalued currencies globally and may be nearing a turning point.
- A coordinated intervention by Japan and the U.S. occurred after the yen surged to multi-decade highs in July, signaling concerns over its weakness.
- OCBC believes a sustained yen recovery needs domestic policy changes, which now appear to be emerging.
- The Bank of Japan seems increasingly willing to normalize policy at a faster pace, potentially supporting the yen.
- OCBC has revised its yen forecast, expecting it to strengthen against the U.S. dollar by end-2026 and end-2027.
- The yen could benefit from shifts in Japanese portfolio flows and a return to domestic assets.
- The Swiss franc is expected to remain the preferred funding currency for carry trades as the yen strengthens.