Yen's Undervaluation Sparks Shift to Asset Allocation Strategies

The yen's weakness has led to increased interest in investing in Japanese stocks and global exchange-traded funds (ETFs) to secure undervalued currency assets, according to Choi Hye-sook, a private banker at Hana Bank.

Choi explained that the current won-yen exchange rate of around 880 won per 100 yen is considered an 'extremely undervalued zone,' given the Bank of Japan's (BOJ) rate normalization and the possibility of a narrowing U.S.-Japan interest rate gap going forward.

'The BOJ has ended its negative interest rate policy and is embarking on gradual rate hikes, but the interest rate gap with the U.S. Federal Reserve remains large, so the value of the yen has not been sufficiently reflected,' Choi said.

Choi forecasted that the won-yen exchange rate will move within a box range of 870 to 910 won per 100 yen in the short term and potentially recover to the early-to-mid 900 won range as the U.S.-Japan rate gap gradually narrows.