DBS Group Research economist Chang Wei Liang has highlighted that the Japanese yen (JPY) remains significantly undervalued, currently hovering near historically weak levels, according to the firm's DEER (DBS Equilibrium Exchange Rate) analysis [1]. Despite the Bank of Japan's rate hike in June and its guidance toward continued policy normalization, the impact on the yen has been limited, with bearish positioning on the currency still elevated [1].
Wei Liang notes that previous interventions in the USD/JPY market have also had limited effect on supporting the yen [1]. Instead, he points to potential government-backed policy initiatives that could encourage Japanese pension funds, including the Government Pension Investment Fund (GPIF), to increase allocations to domestic assets as a more powerful channel for currency support [1].
Such a shift in pension fund asset allocation from overseas holdings to domestic investments is described as compelling from both political and economic perspectives, suggesting that asset flows could play a more significant role in supporting the yen than monetary policy actions alone [1].
No specific market reactions, forward-looking analyst forecasts, or concrete data points such as percentages or dates are provided in the article [1].
CONCLUSION
The Japanese yen remains undervalued despite recent Bank of Japan policy changes, with limited impact from rate hikes and interventions. DBS suggests that a shift in pension fund asset allocation toward domestic assets could provide more substantial support for the currency. Market participants may watch for policy initiatives targeting asset flows as a potential catalyst for yen appreciation.