Japanese market plunge driven by position unwinding around yen trade, says Bleakley's Boockvar


Bank of Japan Governor Kazuo Ueda attends a session in the financial affairs committee at the lower house of parliament on Aug. 23, 2024 in Tokyo.

Tomohiro Ohsumi | Getty Images News | Getty Images

Economists, FX strategists and Japan-focused fund managers are split over the timing of the Bank of Japan’s next interest rate hike, according to a new CNBC International survey.

BOJ Governor Kazuo Ueda said last month that the central bank would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions. 

There is consensus among the 32 analysts polled by CNBC that there would be no change at this week’s BOJ meeting, which concludes Friday. However, the outlook for the October and December meetings is much less certain. CNBC conducted its survey from Sept. 2-13.

The early August volatility spike, the ruling LDP leadership contest and desire for further evidence of wage-price dynamics were commonly cited reasons among analysts as to why a September rate change is extremely unlikely.

“We think the central bank will be keen to move gradually and allow the impact of the July rate hike to be fully felt,” said Jessica Hinds, director in Fitch Ratings’ economics team.

CNBC’s survey found 18.75% of respondents expect a hike for the October meeting, while another 25% said a hike was possible.

About 25% of analysts said a December hike was likely, while 31.25% said it was a “live meeting” meaning the BOJ could adjust monetary policy depending on economic data.

Gregor Hirt, global chief investment officer for multi asset at Allianz Global Investors, sees a strong chance of one hike this year, most likely in October.

“With solid inflation and wage data, alongside resilient growth, the BOJ may want to get one more hike in while the global repricing of yield curves supports Japanese bonds, helping to ease the impact of any policy adjustments and give the Japanese economy time to adjust,” he said.

Masamichi Adachi, the chief Japan economist at UBS, also predicted an October move as long as the BOJ Tankan survey remains solid and market conditions are stable, including “not much noise from politics in both Japan and U.S.”

On the other hand, Richard Kaye, a portfolio manager for Japan equities at Comgest, told CNBC it is highly unlikely the central bank will raise rates again this year, especially if the Japanese yen continues to appreciate. 

“If the yen continues to normalize to its multidecade average of 120-30/U.S. dollar, a major factor in Japanese inflation, namely imported commodity costs, is solved,” he said.

“The main determinant of the yen is the rate or yield gap with the U.S., and the main actor in that is the Fed, and the Fed seems ready to cut.”

The U.S. Federal Reserve is widely expected to cut interest rates at the conclusion of its meeting Wednesday.

The BOJ surprised some market participants in July, when it decided to raise borrowing costs to 0.25% which helped spur a major drawdown of global equities and a rapid appreciation in the yen. 

Japanese market plunge driven by position unwinding around yen trade, says Bleakley's Boockvar

A Reuters poll of economists published last month estimated a 57% chance that the BOJ would raise rates again by year end.

Japanese yen and portfolio positioning

CNBC also surveyed 28 analysts about their end of year forecast for the Japanese yen against the dollar. The average projection is 140.2.

The dollar dropped to 140.71 against the yen last week after the U.S. presidential debate and BOJ board member Junko Nakagawa indicated the central bank will continue to adjust policy going forward provided the economy performs in line with forecasts. On Monday, the dollar weakened past the 140 level against the yen as traders increasingly bet that the Fed would opt for a larger rate cut this week.

Zuhair Khan, managing director and senior funds manager at UBP Investments, whose fund is market and sector neutral, said his focus is for the fund’s portfolio to be relatively robust if the yen strengthens significantly.

“Our overall positioning is more based on the expectation that the sharp 60% rise in the Japanese market until the end of July will now change to a more range bound market. We are long laggards and short stocks that have run up too much,” he said, adding that the fund’s longs include cash-rich companies that may do large share-buybacks or management buyouts. 

Kei Okamura, Neuberger Berman senior vice president and Japanese equities portfolio manager, told CNBC that his base case is for a stronger yen and resurgence in the domestic economy which “bode well for smaller to mid-cap stocks.” 

“We continue to look for high quality companies with strong pricing power that can pass on rising import costs. Companies that are changing their stance towards capital management and corporate governance is also important from an engagement perspective.”

The Bank of Japan will issue its September policy statement on Friday.



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