FXstreet.com (Barcelona) - JP Morgan’s long-term fair value model employs four explanatory variables: terms of trade (+ impact on ccy), productivity growth (+), international investment income balance (+), and government debt (-).
According to that model, the JPY’s overvaluation comes from high debt/GBP ratio, but knowing that most of the Japanese debt is domestically owned the analysts consider it an overstated result. “We therefore scale down the Japanese debt variable by 50% which brings the USD/JPY fair value estimate to 89”, wrote Justin Kariya and Kevin Hebner, analysts at JP Morgan, pointing to 112 as the fair value for the USD/JPY.
According to that model, the JPY’s overvaluation comes from high debt/GBP ratio, but knowing that most of the Japanese debt is domestically owned the analysts consider it an overstated result. “We therefore scale down the Japanese debt variable by 50% which brings the USD/JPY fair value estimate to 89”, wrote Justin Kariya and Kevin Hebner, analysts at JP Morgan, pointing to 112 as the fair value for the USD/JPY.
