Japan to have a significant direct effect from CNY depreciation

Japan's large trade weight with China, and East Asia more broadly, implies a significant direct effect from changes in China's exchange rate, growth and inflation profiles. Yet, the yen is extremely undervalued already. 

With the Bank of Japan near the end of its policy rope, only limited further easing is expected in April, and wage dynamics rather than the yen likely to play a larger role raising inflation, limited room is seen for yen depreciation. 

"Consequently six-month USD/JPY is forecasted to 127, yet in combination with other forecast changes this implies a yen REER appreciation of 3% relative to spot", says Barclays.