(Bloomberg) -- The yen is likely to benefit most among currencies as disinflationary pressures bear down on markets and investors shun risk, according to Societe Generale (PA:SOGN).
The U.S. five-year, five-year inflation swap rate this week dropped as low as 2.068%, the least since January, while the equivalent euro-area rate is hovering close to its lowest level since March. Expectations for consumer-price gains have tumbled, and that has helped spur an increase in bets on policy easing by the U.S. central bank.
For SocGen strategist Kit Juckes, there’s a danger that it will be as difficult to revive inflation now as it was to rein it in back in the 1980s. And that has him upbeat about the prospects for the Japanese currency.
“In this fight against disinflation, the currency winner is likely to be the yen,” Juckes wrote. “Risk aversion always helps the yen.”
He recommends selling the euro against the yen, and expects that overall bets on Japanese currency strength will perform well. With the U.S.-China trade war intensifying and investors flocking to haven assets, the yen has gained around 1.8% this month against its U.S. peer and is May’s best performer among Group-of-10 currencies.