Posted at 1:22 p.m., Friday, December 15, 2006
Investment bank says yen undervalued by 10 percent
Bloomberg News Service
The yen is undervalued by at least 10 percent on average and will rally next year because the Bank of Japan will lift interest rates, according to Lehman Brothers Holdings Inc.The yen has fallen against 14 of the 16 most active currencies this year as Japanese investors sought higher returns overseas. At 0.25 percent, Japan's benchmark lending rate is 5 percentage points lower than the Federal Reserve's target and 3.25 percentage points below that of the 12-nation euro-area.
"The currency is cheap," Lehman analysts, led by London-based head of currency strategy James McCormick, wrote in a research report yesterday. "The main reason the currency is so undervalued is that Japanese investors have been pouring mountains of capital into overseas markets."
From around 117.91 yen per dollar today in Tokyo trading, the yen will strengthen to 112 per dollar next quarter, the highest since June, according to Lehman. It will rise to 105 per dollar by the end of 2007, the strongest since May 2005, according to the report.
The currency is undervalued by 10 percent to 15 percent on average, and by as much as 30 percent against the New Zealand dollar, according to Lehman's models. Lehman, based in New York, is the fourth-largest U.S. securities firm by market value.
