DBS Group Research’s Chang Wei Liang notes that the Japanese Yen is the most under-valued G10 currency on DBS Equilibrium Exchange Rate (DEER) metrics. Political developments after the LDP’s landslide victory and clarification on fiscal plans have eased some concerns, while official comments about monitoring markets may curb speculation, creating conditions for the Yen to recover from its deep undervaluation.

Political shift supports undervalued Yen

"JPY (Japanese Yen) still stands as the most under-valued across G10 currencies."

"Following LDP's landslide victory in the February Lower House election, fiscal fears have eased somewhat as the Takaichi government has clarified that a promised 2Y suspension of the consumption tax on food will not rely on additional bond issuance."

"Furthermore, government officials including Finance Minister Katayama have also said that they are paying attention to markets post-elections, which should curb excessive speculation against the JPY."

"Speculative JPY shorts may be squared further once fiscal concerns are shown to be overblown, allowing the JPY to recover from its deep undervaluation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)