Yen Strength Here to Stay for SocGen as Currency Is `Dirt Cheap'

(Bloomberg) -- The yen’s appreciation this year could see it come under pressure in the short term, but the currency should be underpinned in the longer term by its cheap valuation, according to Societe Generale.

The yen has strengthened almost 5 percent since the start of this year owing to a confluence of factors including investor pessimism on the dollar, rising speculation that the Bank of Japan could move toward policy normalization and demand for haven assets following the recent spike in market volatility gauges.

While the yen reached 106.84 per dollar on Wednesday, its strongest level in 15 months, the currency’s trade-weighted index is still about 3 percent below its multi-year average, according to Kit Juckes and Alvin-T Tan, currency strategists at SocGen. Not only that: the yen’s real-effective exchange rate is below its longer-term average by about 20 percent, making it “dirt cheap”.

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