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Is the yen overvalued?

Forex Analysis - 15th June 2012

Written by Imran Allana


Fears the Japanese yen may be overvalued has sparked speculation in recent days of the possibility of further intervention from the Bank of Japan (BoJ). The International Monetary Fund (IMF) has recently released a report on the Japanese economy stating the yen rate has appreciated over the past year, partly due to safe-haven capital inflows, and now the market is questioning whether the currency may be overvalued.

With the eurozone in turmoil again and Spain stepping into the debt crisis spotlight, the decision the BoJ’s are facing is reminiscent of Greece. The Greek Ministry of Finance (MoF) stated they would adopt a ”wait and see” approach with regards to whether the situation surrounding Europe would improve or worsen. However, this time the decision may be forced upon them with Japanese exporters suffering more than ever and the BoJ struggling to enforce, or even reach, the one percent inflation target.

Timing will be key for those traders who have been burnt in the past by an overvalued yen. It has been speculated that the BoJ will most likely wait until July when they review their inflation figures before they decide whether to intervene. By that time, Greece will hopefully have a new government in place and we may be a few steps closer to some sort of resolution with regards to Italy and Spain, which should help with the Japanese monetary easing decision.

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