Japanese Yen: Asset flows and valuation support – DBS

DBS Group Research economist Chang Wei Liang analyses long-term Japanese Yen valuation using DBS’s DEER framework, highlighting that JPY remains significantly undervalued near historically weak levels. He notes limited impact from recent Bank of Japan policy normalization and past USD/JPY interventions, and focuses on potential government-backed shifts in pension fund asset allocation toward domestic Japanese assets as a more powerful currency-support channel.

Undervalued JPY and pension flows

"This week’s featured insight is our DBS Equilibrium Exchange Rate (DEER) analysis, tracking long-term valuations across major currencies."

"The Japanese yen (JPY) remains significantly undervalued, hovering near historically weak levels."

"Although the Bank of Japan's rate hike in June and its guidance toward continued policy normalization have prompted some reduction in speculative short positions, bearish positioning on the yen remains elevated."

"More impactful measures to support the currency could emerge through policy initiatives encouraging Japanese pension funds—including the Government Pension Investment Fund (GPIF)—to increase allocations to domestic assets."

"Such a reallocation from overseas holdings to domestic investments is compelling not only from a political perspective but also on economic grounds."