The DBS Equilibrium Exchange Rates (or DEER) indicate fair values for global currencies relative to a trade-weighted currency basket.

The Japanese yen (JPY) remains significantly undervalued, hovering near historically weak levels. Following its interventions in the USD/JPY market during April and May, the Japanese government has refrained from further direct action. Although the Bank of Japan's rate hike in June and its guidance toward continued policy normalization have prompted some reduction in speculative short positions, bearish positioning on the yen remains elevated. More impactful measures to support the currency could emerge through policy initiatives encouraging Japanese pension funds—including the Government Pension Investment Fund (GPIF)—to increase allocations to domestic assets.

Japanese Finance Minister Katayama alluded to this possibility in a speech on 10 July, stating that the government would pursue policies aimed at encouraging pension funds to invest more heavily in Japanese assets. Such a reallocation from overseas holdings to domestic investments is compelling not only from a political perspective but also on economic grounds. Even setting aside Prime Minister Takaichi's advocacy for greater domestic investment through public-private partnerships, the long-term investment case for Japanese assets remains attractive. The yen and Japanese government bonds (JGBs) are currently trading at some of their most attractive valuations in decades, in stark contrast to many foreign equities and currencies, which appear richly valued when measured in JPY terms.

The US dollar (USD), meanwhile, is gradually relinquishing some of its overvaluation as oil prices normalize toward pre-conflict levels following the restoration of energy shipping through the Strait of Hormuz. While geopolitical uncertainties persist and the United States and Iran have yet to reach a comprehensive peace agreement, President Trump appears reluctant to engage in a broader conflict that could significantly disrupt global energy supply chains and increase recession risks. Nevertheless, any decline in the USD is likely to be measured rather than abrupt, supported by several temporary factors, including the FIFA World Cup, a major IPO completed in June, and substantial private funding rounds for US artificial intelligence and aerospace companies. However, should capital markets sentiment soften, the dollar's elevated valuation could leave it vulnerable to a more pronounced correction.