Forex
Hedge funds play a weak Japanese yen
![](https://letizo.com/wp-content/uploads/2024/05/hedge-funds-play-a-weak-japanese-yen_664a14a60e910.jpeg)
By Nell Mackenzie
LONDON (Reuters) – Pressure on Japan to prop up a weak yen may have ebbed, but currency weakness remains a headache for Tokyo.
The yen is down 9.4% against the dollar so far this year, and looks set for a fourth year of declines. That’s created a two-speed economy, with exports and tourism benefiting from a more competitive exchange rate while households and small businesses are squeezed by rising import prices.
Four investment managers shared four ideas on how to trade yen weakness. Their views do not represent recommendations or trading positions, which they cannot reveal for regulatory reasons.
1/ FLORIN COURT CAPITAL
* Diversified systematic asset manager
* Size: $2 billion assets under management (AUM)
* Founded in 2016
* Key trade: Short-Asia currencies ex-Japan
Florin Court CIO Doug Greenig says that instead of playing a weak yen, investors should put on bets against Asia’s emerging market currencies.
“Investors can consider shorting other Asian currencies like the Korean Won or the Thai Baht, where real interest rates are also relatively low versus some other EM currencies,” Court said. “And you don’t directly face the risk of BOJ intervention.”
The Bank of Japan (BOJ) was believed to have intervened twice, on April 29 and May 1, to stabilise a yen that had slumped to 34-year lows around 160 per dollar. It is now around 155.6.
The yen has weakened sharply for clear reasons: real interest rates are much higher outside of Japan.
U.S. rates have been kept high by loose fiscal policy and a robust economy. By contrast, Japan does not have a free hand in raising policy rates, Greenig said.
remove ads
.
Japan’s huge public debt pile is 263% of GDP, but the Bank of Japan holds almost half of that, so the situation might be more nuanced than it looks, he said.
2/ AQR CAPITAL MANAGEMENT
* Systematic asset manager
* Size: $108 billion
* Founded in 1998
* Long Japanese stocks
Jonathan Fader, managing director in the Macro Strategies Group at AQR Capital Management, says BOJ intervention complicates matters for yen bears but the key driver of yen weakness remains – accommodative Japanese monetary policy while rates elsewhere are at multi-year highs.
He favours Japanese stocks that benefit from currency weakness.
Fader noted that the tight relationship between the yen and Japanese shares broke down as Tokyo stepped up verbal intervention. But stock tailwinds remained, such as governance improvements and banks benefiting from an end to negative rates.
The BOJ in March delivered its first rate hike in 17 years.
“Should yen volatility calm down, Japanese shares could well resume their outperformance,” said Fader.
Japan’s blue-chip is off record highs hit earlier this year, but is still up some 16% year-to-date.
3/ MOUNT LUCAS MANAGEMENT
* Macroeconomic hedge fund
* Size: $1.5 billion
* Founded in 1986
* Dollar/yen forwards
For David Aspell, partner at Mount Lucas, a large U.S/Japan rate gap means investors will continue to use the yen as a funding currency for carry trades.
One way to play yen weakness is through currency forwards, contracts that allow investors to hedge FX risk, he said.
remove ads
.
Buying a dollar/yen one-year forward contract which trades at a discount to current levels means the currency pair would need to weaken over a year to loose money, said Aspell. Investors would gain if there is no change or dollar/yen strengthens.
“Intervention has the best chance of working medium term when it is a genuine surprise and when it is helped along by the fundamentals,” Aspell said.
4/ PINEBRIDGE INVESTMENTS
* Global asset manager
* Size: $168.2 billion
* Independent since 2010
* Buy high quality, investment grade portions in short duration, refinanced U.S. 2024 CLOs
The BOJ has also abandoned yield curve control where it capped long-term interest rates around zero, but said it would keep broadly buying government bonds as before and ramp up purchases if yields rise rapidly.
Since this policy’s 2016 start, Japanese investors sought higher returning investments elsewhere. The plus 5% yields on investment grade tranches (portions) of U.S. collateralized loan obligations (CLOs) drew many.
“Right now as investors in CLOs, they are our competition because they have such a strong demand for U.S. fixed income assets,” Laila Kollmorgen, a PineBridge managing director, adding that what Japanese investors do will determine how Pinebridge invests later in the year.
Now that JGB yields have hit decade highs, this might tempt Japanese investors to bring funds back home.
“We must remain nimble,” Kollmorgen says.
While the typical CLO deal length is eight years, she’d opt for newly reset CLOs in 2024. On these, the deal time has been restarted. She’ll look for an extended three-year reinvestment period, refinanced debt and lender protection against the bonds being paid back in full during the first year.
remove ads
.
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
![](https://letizo.com/wp-content/uploads/2024/09/major-russian-lenders-say-yuan-coffers-empty-urge-centralbank-action_66dc6b1523127.jpeg)
By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
![](https://letizo.com/wp-content/uploads/2024/09/bank-of-america-sees-more-downside-for-the-dollar_66dc6b1b4bb7b.jpeg)
Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
![](https://letizo.com/wp-content/uploads/2024/09/dollars-demise-appears-overstated-jpmorgan_66dc6b208bdf2.jpeg)
Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
- Forex2 years ago
Forex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Forex2 years ago
Unbiased review of Pocket Option broker
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Stock Markets2 years ago
Morgan Stanley: bear market rally to continue
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China