Friday, September 29, 2006

The Economist Agrees With Me That the Yen is the Most Undervalued Currency

A few weeks ago, I argued that the Japanese yen is the most undervalued currency. Now The Economist have published an article where they agree with that assessment.

The Economist makes similar points as I do, and also adds that the real trade weighted exchange rate of the yen is at its lowest since 1982.

They offer a somewhat different explanation of the yen weakness, arguing that it is not the interest rate differential but citing Stephen Jen of Morgan Stanley,rather the flow of money going into dollar, pound and euro assets from Asian central banks and oil producer's governments. But that begs the question of why these governments choose not to invest in yen assets, and the reason for that is of course the low yields of those assets.


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