Authors: Ruth Carson and Malavika Kaur Makol
Article: Original article
Publication date: Thursday, December 15, 2022
One of the best-performing bond funds in Asia stated that the yen is a top priority that investors should be focused on, when the world’s last “stronghold” of ultra-low rates ceases to be one.
Omar Slim, a money manager at PineBridge Investments, said that a change in the Bank of Japan’s (BOJ’s) monetary policy will be the main reversal, leading to a potential strengthening of the yen.
The yen rose by more than 11% compared to its October’s low on the background of government intervention, hopes for a slowdown in rate hikes by the U.S. Fed and speculations over a possible shift from the current BOJ’s monetary policy next year.
Slim also added that authorities seem to protect the yen at the level of 145 per dollar, and the best range for them is likely to be between 120 and 130, at least for now.
Investors have begun to create a “capitulation” scenario for the last dove left among major central banks, which might affect everything from shares to bonds. While some suggest that the BOJ’s reversal might lead to an increase in bond yields everywhere, Slim sees little impact on U.S. Treasuries.
The Fed’s history has such a strong influence that it will overshadow other banks’ actions, he said.
Omar Slim, who helps run PineBridge’s bond fund that outperformed 92% of its peer funds over the last five years, joins Fidelity International and T. Rowe Price in supporting the yen.
He assumes that the BOJ might potentially correct its policy through various mechanisms, e.g. by changing the amount of money it spends on buying government debt, or by allowing the bond yield cap to shift.
Slim is negative on Japanese government bonds (JGB), yields of which have been intentionally decreased over many years in order to keep borrowing costs at their lows. He added that it would be really brave to say something in favor of JGBs.
Forecast: the decline in USDJPY
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