Bank Of America: Is JPY's Perceived Undervaluation Justified?

Bank of America note that the "JPY has fallen around 7% ytd vs. USD, and has been the weakest G10 currency. Japan's real effective exchange rate is only 5% above the historical low reached in 2015. In June 2015, the Bank of Japan's Governor Haruhiko Kuroda noted the yen was not likely to weaken much further on a real effective exchange rate basis - a comment which in fact marked the yen's bottom. However, the yen's cyclical bottom has depreciated over time as Japan gradually lost its presence in the global economy. We observe that the yen's cyclical weakness to date is justified. This suggests JPY's perceived cheapness can extend over the next 12 months as we expect a widening policy divergence and higher commodity prices."