(Bloomberg) -- The yen could strengthen considerably to a level not seen since 2013 in the event global markets assume a disorderly posture amid the coronavirus turmoil, according to Goldman Sachs Group Inc (NYSE:GS).
Zach Pandl, the firm’s co-head of global foreign exchange and emerging market strategy, told Bloomberg TV his long-term fair value estimate for the yen is 95 per dollar. It traded around 106 in early Friday trading.
“The yen has substantial further upside,” Pandl said. “It is one of the few classic safe-haven assets where you can still say it is relatively undervalued.”
That would extend a run that’s taken the Japanese currency to a six-month high against the greenback. Safe-haven assets from the yen to gold and Treasuries lured flows amid the spread of coronavirus cases as investors fret the impact on the global economy could be more severe than initially thought.
The move may take time, Pandl said, without laying out a time line for the appreciation to unfold. “I don’t think it’s going there tomorrow, but I do think it is a realistic target if we have a very disorderly period for global markets over the next couple of months.”
Any further appreciation of Japan’s currency won’t go unnoticed by the country’s central bank but it will be hard to readdress given its limitations, Pandl said.
“The Bank of Japan may step in to try to protect that at some point but there’s relatively little that they can do,” he said in the interview in New York. “Monetary policy is going to be very difficult to ease and direct intervention in the currency is a bit controversial in this environment where we’re still talking about trade policy, about currency policy with the U.S.”
The yen’s fall through 112 per dollar in recent weeks had initially flummoxed some investors as the move raised doubts on the currency’s safe-haven status. That slide quickly gave way to strength, which pushed it below 106 per dollar in Thursday’s session.
“I don’t really buy the idea that the yen’s safe-haven behavior has changed,” Pandl said. “The last few weeks it’s performed right as expected as equity markets have weakened.”