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ING Group NV ADRING says yen 20% undervalued as Bessent backs joint intervention
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ING analysts said the yen is around 20% undervalued against the dollar, a gap its fair-value model shows has persisted through 2026, as U.S. Treasury Secretary Scott Bessent backs the late-July joint U.S.-Japan intervention to succeed. ING Global Head of Markets Chris Turner said Bessent, a former hedge fund portfolio manager, will have committed significant political capital to the intervention, the first joint yen-buying exercise since the 1998 Asian financial crisis. Turner said Bessent's confidence stems from a conviction that the yen is undervalued and expectations of yen-supportive policy shifts in Japan, including a faster pace of Bank of Japan rate hikes, with markets pricing roughly a 75% chance of a BOJ hike in September. ING FX strategist Francesco Pesole said the bank's Behavioural Equilibrium Exchange Rate model, which uses terms of trade, productivity, current account balances and government spending, has shown USD/JPY overvaluation above 20% throughout 2026. Turner cited two precedents where central bank signalling shifted currency trends: Sweden's Riksbank hedging its FX reserves in June 2023 when it viewed the krona as undervalued, and Mexico's Banxico unwinding a $7.5 billion short USD/MXN forward position in September 2023 to signal the peso was too strong, with both currencies holding their levels afterward. Turner said durable yen appreciation requires Japanese capital to stay onshore, tying the currency's path to Tokyo's new growth strategy, announced in July, to deploy 370 trillion yen ($2.3 trillion) of public-private investment by 2040. He cited Bank of Korea research showing Japan retains 46% of overseas investment income offshore as reinvested earnings, versus 40% for Korea, 28% for Germany and 18% for Taiwan. Turner said further structural moves could include adding Japanese government bonds to NISA accounts or a reallocation by Japan's Government Pension Investment Fund toward domestic assets, potentially timed to the BOJ's Oct. 30 meeting, though he called such changes speculative. ING's base case sees USD/JPY at 158 by the end of 2026 and 152 by the end of 2027.
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