Societe Generale: Yen “cheap” for now, but to rise in 2019 – Bloomerg

As noted by Bloomberg, analysts at Societe Generale are warning that the Japanese Yen could undergo a “big awakening” in 2019.

Key quotes

“Using options to bet on gains for Japan’s currency is a smart wager for 2019, according to Societe Generale.  The dollar set a 2018 high of about 114.50 yen on Oct. 4, which the bank cited as an area of technical resistance.  “On top of being a good entry point to buy yen, we think investors should consider rising risks of a sharp yen bounce in the medium term,” Olivier Korber, a currency derivatives strategist at SocGen, said in a research note Thursday.

The call for a yen rally dovetails with the firm’s assessment, laid out in a separate research piece Thursday, that the dollar is “overvalued.” Although SocGen said it’s wary of selling the greenback too soon because the U.S. economy is “still running hot,”  it sees a shift next year.

The result of the U.S. midterm elections, which produced a divided Congress, “supports the idea that the best quarter for economic growth in the current cycle will prove to be Q3 2018, and it’s all downhill from here,” Kit Juckes, a global fixed-income strategist at SocGen, wrote separately Thursday. “That suggests rates may peak next summer, at the same time as other, lagging central banks in Europe start raising rates.”

Yen bulls will be looking for a pause in U.S. rate hikes by the Fed, expectations of Bank of Japan tightening or more risk aversion, he said. “The potential for higher U.S. rates appears minimal compared with super low Japanese rates,” Korber wrote.”