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The Japanese yen is making a comeback, especially against the correcting dollar.

What is the exact nature of the move in USD/JPY Deutsche Bank explains:

Here is their view, courtesy of eFXnews:

Even with the ongoing pullback in USD/JPY, it’s still around 30% above its fair value measures taking it to extremes not seen for over 30 years, notes Deutsche Bank.

Does this scream more aggressive turnaround over the coming months? No, answers DB.

“The conditions for a turn require a change of regime that plays against the yen’s role as the preeminent funder and more specific to Japan, evidence from the export sector that the yen is cheap and that it is combining with cheap oil such that JPY FEER measures confirm BEER and PPP undervaluation signals,” DB clarifies.

The yen is more than 30 percent cheaper than its fair value December 2014

“In the meantime, the extreme yen valuations are likely to mean that over the next two years the yen slowly loses its current starring role, as the leading edge of a multi-year USD upswing, but still participates in USD strength,” DB argues.

As such, DB thinks that the recent correction in USD/JPY will be firmly supported by Japanese investors buying-on-dips and importers who have not secured sufficient amounts of USD yet.

In line with this view, DB targets USD/JPY in 2015 at 121 for Q1, 121 for Q2, 123 for Q3, and 125 for Q4.

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