USD/JPY: Modest Support from Buying on Dips but Upside Capped – Deutsche Bank
USD/JPY: Modest Support from Buying on Dips but Upside Capped – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, notes that the major lifers
have unveiled their investment strategies for FY3/17 and they face a
situation in which securing yields in excess of the assumed rate of
return is challenging under the negative interest rate policy.
Key Quotes
“Nevertheless,
the environment is not conducive to simply increasing exposure to risky
equity and forex investment. In pursuit of safely gaining as high
positive yields as possible, they are likely to continue selecting
superlong JGBs, corporate bonds, hedged foreign bonds (especially US and
European non-government bonds, European peripheral bonds), and other
investments and loans.
It is likely that the overall allocation
to foreign bond investment can be several trillion yen. However, hedged
foreign bonds which are neutral for JPY should be preferred. Unhedged
foreign bonds (bonds as a forex investment) will likely be bought
cautiously, waiting for deeper dips and suchlike. We doubt the lifers
will chase upside when the USD/JPY is rising toward 115 or above.
Conversely,
we expect the lifers to calmly sell USD for hedge if the USD/JPY
rallies because yen appreciation since February has damaged their
unhedged foreign bond holdings. In other words, lifers' foreign bond
purchases will only provide extremely modest support for USD/JPY, but
are very likely to weigh on USD/JPY upside.”
