Yen Undervalued, Yuan to Lose Ground
Danske Bank continues to expect that the Bank of Japan will tighten monetary policy this year, although the timing remains very uncertain.
While a key argument against the Euro is that the currency is overvalued, it considers that the Japanese currency is substantially undervalued.
According to Danske; “Overall, USD/JPY seems fundamentally overvalued and combined with potential monetary policy tightening; we expect the cross to drop below 130 on a 6-12M horizon. If inflationary pressures in Japan continue to persist, it will increasingly build pressure on the ultra-dovish stance that the BoJ has.
Danske expects the Chinese yuan will lose ground due to broad dollar gains. A weaker Chinese currency would also act as a barrier to Euro gains.
Danske Bank continues to expect that the Bank of Japan will tighten monetary policy this year, although the timing remains very uncertain.
While a key argument against the Euro is that the currency is overvalued, it considers that the Japanese currency is substantially undervalued.
According to Danske; “Overall, USD/JPY seems fundamentally overvalued and combined with potential monetary policy tightening; we expect the cross to drop below 130 on a 6-12M horizon. If inflationary pressures in Japan continue to persist, it will increasingly build pressure on the ultra-dovish stance that the BoJ has.
Danske expects the Chinese yuan will lose ground due to broad dollar gains. A weaker Chinese currency would also act as a barrier to Euro gains.