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The “sharply undervalued” yen is poised for a revival even after Bank of Japan Gov. Haruhiko Kuroda surprised markets by warning of further potential policy easing, according to UBS Global Wealth Management.

The fund manager, among the biggest in the world, sees the yen gaining 5 percent to ¥105 per dollar in the next 12 months. Japan’s accelerating wage growth is bound to spur inflation, the company reckons, even as Kuroda said Tuesday that additional stimulus may be considered if the exchange rate affects the country’s economy.

Floundering world economic momentum could also see the yen benefit from safe haven demand, UBS GWM strategists, including Thomas Flury, head of currency research, said in a note to clients on Friday. They said Japan’s macro position is healthy and, despite Kuroda’s remarks, forecast that the BOJ will start normalizing monetary policy in early 2020, even before achieving its 2 percent inflation target.

“The Japanese yen remains the most undervalued major currency,” said the fund manager, which oversees about $2 trillion. “Sluggish global economic growth momentum and the approaching end of the BOJ’s easing policy should tilt the balance of risks toward a stronger yen.”

Kuroda’s warning has weighed on the yen but investor skepticism has limited losses. The currency traded at ¥110.88 per dollar as of 5:00 p.m. on Tuesday.

UBS GWM recommended financing a long yen position by going short on an equally-weighted basket of the dollar, Swiss franc and the Chinese yuan, a set-up that covers three major regions and helps reduce volatility, they said. In 12 months they predict the yen will strengthen to ¥105 per Swiss franc from ¥110.23 currently, and 15 per yuan from ¥16.35.

The key risk to this trade would be accelerating global growth, but even in that scenario UBS GWM sees Japan’s inflation dynamics improving, triggering an earlier-than-expected policy move by the BOJ. In contrast, they expect the U.S. Federal Reserve will reach the end of its current rate hike cycle, resulting in a policy divergence and boosting the yen versus the dollar.

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