2014.10.2413:53:00UTC+00Eur/jpy Could fall 15% Over the Next 2-3 Years: Societe Generale

Quotes from Societe Generale:
- Japan's Administration has engineered a 20% real decline in the value of the yen over the last two years in order to fight deflation. The Euro is substantially overvalued relative to the yen and as German Bund yields move closer to Japanese JGBs, a weaker Euro is both feasible and possibly the only available policy tool to fight deflation in Europe.
- With the cost of shorting the Euro now no longer an issue, the simplest way to implement is through a spot position. This is a long-term trade (1-3 years). 1-year EUR/JPY risk reversals are still priced for puts to be more expensive than calls, albeit less so than in recent years.
- EUR/USD is trading below our fair value models, falling faster than relative interest rates moved in its favour. It could correct while a recovery in global equity markets will see USD/JPY head back up towards 110. A temporary move back above 140 in EUR/JPY is a clear risk therefore if we return to a world of easy fed policy and rising equity markets.