On several metrics, the yen appears to be the most undervalued major developed market currency: on a purchasing power parity basis and when its real effective exchange rate (REER) is compared to both its 10-year average and 10-year trend. However, when the Peterson Institute of International Economics publishes its new estimates of fundamental equilibrium exchange rates, likely next month, they are unlikely to indicate that the yen is significantly undervalued, given that the IMF’s latest projection of the current account surplus in five years time remains below 3%.
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