If you look at the sterling, although the Bank of England stated in its minutes that an interest rate rise would not be coming soon, but the yield on the sterling is still 5.25% compared to the yen which is 0.25%, the swap on this pair is still high. Selling it to it's current level would only signal a good bargain for carry traders.
Comments made by G7 has been that the yen is too low, but this issue has been there since god knows when. Rumors and comments are just that, unless strong actions and measures are taken, they are unfounded. The yen could go down furthur, but but how much lower can they get? A good bargain would always be a good bargain and a better bargain would be when the yen pairs go even lower. If you remember, the sterling/yen pairs still remained on it's upside path despite the raise of 0.25% by the BOJ!
If i'm a large hedge fund, I would be delighted to see the pairs go even lower, because I can buy them at lower prices, comments made by Suda and the G7 has always been there, and how many times were action taken? NONE.
My personal opinion on this is that, the comments were just comments, a higher yen would not benefit Japan, and although the European nations and the US stand to gain ,they will not take enough action to prevent the yield difference. This bearish talk would soon be forgotten and the yen pairs would resume on their bullish paths once again.
The markets memory is short, rather like my grandmother's, how many times have the yen been too low, and how many times were the calls for a stronger yen been ignored?
Carry traders would see the cheap carry pairs and pounce on it again to benefit not only from the swap, but for the potential capital gains as well.
Let's say that the BOJ raises interest rate, the most that they will increase would be 0.25%, which still would mean one thing, cheap funding. Not only the sterling yen pair, but also the NZD yen and aussie yen pair, the swap on these 2 pairs would be 7% and 6% respectively. an increase of yen interest rates would result in a 6.75% yield for NZD and 5.75% for aus, which is still a very good source for swaps.
Once the fever of yen selling finishes, I expect the yen pairs to bounce back up.
This is my personal opinion and of course, I might be wrong so I'm putting this up for discussion.
Comments made by G7 has been that the yen is too low, but this issue has been there since god knows when. Rumors and comments are just that, unless strong actions and measures are taken, they are unfounded. The yen could go down furthur, but but how much lower can they get? A good bargain would always be a good bargain and a better bargain would be when the yen pairs go even lower. If you remember, the sterling/yen pairs still remained on it's upside path despite the raise of 0.25% by the BOJ!
If i'm a large hedge fund, I would be delighted to see the pairs go even lower, because I can buy them at lower prices, comments made by Suda and the G7 has always been there, and how many times were action taken? NONE.
My personal opinion on this is that, the comments were just comments, a higher yen would not benefit Japan, and although the European nations and the US stand to gain ,they will not take enough action to prevent the yield difference. This bearish talk would soon be forgotten and the yen pairs would resume on their bullish paths once again.
The markets memory is short, rather like my grandmother's, how many times have the yen been too low, and how many times were the calls for a stronger yen been ignored?
Carry traders would see the cheap carry pairs and pounce on it again to benefit not only from the swap, but for the potential capital gains as well.
Let's say that the BOJ raises interest rate, the most that they will increase would be 0.25%, which still would mean one thing, cheap funding. Not only the sterling yen pair, but also the NZD yen and aussie yen pair, the swap on these 2 pairs would be 7% and 6% respectively. an increase of yen interest rates would result in a 6.75% yield for NZD and 5.75% for aus, which is still a very good source for swaps.
Once the fever of yen selling finishes, I expect the yen pairs to bounce back up.
This is my personal opinion and of course, I might be wrong so I'm putting this up for discussion.
