Back
16 Aug 2013
Flash: USD/JPY could benefit from increased risk-taking – UBS
FXstreet.com (New York) - Japanese investors are buying foreign bonds again, and with US 10 yields approaching a multi-year high overnight, we would not be surprised if this trend continues, suggests Research Analyst Gareth Berry at UBS.
Key quotes
The latest official data from the Ministry of Finance show six consecutive weeks of outflows. This took net buying of foreign portfolio assets for July as a whole to a 22-month high.
“Seasonal factors are at work to some degree. But this change of heart is largely due to a combination of rising yields abroad and low yields at home. And JGB yields are likely to remain subdued given the BoJ's commitment to buy more JGBs than Japan's Ministry of Finance currently plans to issue (net of redemptions and buybacks). The JGB "free float" is shrinking.”
“Of course much of these outflows will still be hedged on the FX side, reducing the impact on USDJPY. However, as the Fed inches ever closer to policy normalization the cost of hedging is likely to rise, and we should expect to see an increased willingness to take more FX risk too.”
Key quotes
The latest official data from the Ministry of Finance show six consecutive weeks of outflows. This took net buying of foreign portfolio assets for July as a whole to a 22-month high.
“Seasonal factors are at work to some degree. But this change of heart is largely due to a combination of rising yields abroad and low yields at home. And JGB yields are likely to remain subdued given the BoJ's commitment to buy more JGBs than Japan's Ministry of Finance currently plans to issue (net of redemptions and buybacks). The JGB "free float" is shrinking.”
“Of course much of these outflows will still be hedged on the FX side, reducing the impact on USDJPY. However, as the Fed inches ever closer to policy normalization the cost of hedging is likely to rise, and we should expect to see an increased willingness to take more FX risk too.”