Switching funds to a more defensive/less growth oriented option

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Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

I feel the yen depreciation has been largely driven by the interest rate differential, so I think it's quite plausible that the converse is also true - when the rates go up here or down the US then the yen should get a nice fillup.

But nothing in certain in life, save death & taxes.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

Rates falling in the US, yen strengthening as a result. So far, as expected.
sutebayashi
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Re: Switching funds to a more defensive/less growth oriented option

Post by sutebayashi »

Wait and see. I’m quite long term in my view and happy to sit through any temporary reprieve for the yen. (Truth be known I have bought more dollars in the wake of the intervention and yen strength this week.)

I saw some chart on Tokyo TV Morning Satellite this week showing a decoupling between the interest rate differential (it’s been decreasing for a while) and the USD/JPY rate (recently hitting multi decade lows), so I’m not of the view that that’s the primary driver.

Next big thing I’m looking forward to is the BOJ meeting.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

Looks like yen/dollar is re-coupling to the yield curve differential nicely this week.... back into the 154 handle. BoJ next week, I think they have to follow through with a hike now - if they don't yen will weaken all the way back down.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

sutebayashi wrote: Sun Jul 14, 2024 8:22 am This is a popular topic of late.

Personally I’m taking the other side of that wager.

And even if the yen does strengthen, does it strengthen from 158 whereabouts it is today, or from 170 or wherever it might be when the tide finally does reverse?
Still confident the yen is going to weaken? We're back to around 150, BoJ has announced the schedule for reducing it's JGB balance and Ueda-san sounded a lot more hawkish than most expected - specifically these two statements

1. More hikes could come this year
2. There is nothing special about 0.5% being a line in the sand.

This is pretty big news for banks. They're going to be able to finally start earning some net interest margin, and I would think this will make them more likely to lend at the margin - a nice earnings cushion for them to be able to make more loans. Could be quite a powerful economic multiplier.
sutebayashi
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Re: Switching funds to a more defensive/less growth oriented option

Post by sutebayashi »

Deep Blue wrote: Wed Jul 31, 2024 9:19 am Still confident the yen is going to weaken?
It’s been an exciting week for sure, but I hark back to my earlier comment about mine being a long term view.

The BOJ outcome didn’t inspire me to have any change in thinking. Reading through bullets of the Ueda press conference, there was a statement that sometime in ‘26 the BOJ balance sheet might be 7-8% smaller than it is now, due to the plan to reduce bond purchases. So to me the monetary policy looks like it’s going to be very loose even two years from now, and that’s assuming that they actually follow through on the bond purchase reduction plan laid out.

That said currency rates are affected by both sides and if the FOMC hits the brakes on their balance sheet reduction and cuts interest rates hard then that would level things out.

I’m glad I have been increasing my gold exposure, although I know many do not approve of such!

At least I can say I don’t think the dollar/yen is going to get back to 162 again for a few months at least, but I’m holding on to my dollars, and inclined towards looking at opportunities to buy some more during August or September. It seems like a bit of a fire sale out there at the moment.

The Japanese stocks have been walloped since your comment, so that makes me skeptical that Ueda and co will see a need to hike rates again this year, unless there is a rapid reversal in recent moves.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

I'd be curious what you thought was driving the yen weakness, if if wasn't interest rate differentials and the carry trade?

I am on record as saying that's what I thought it was, and that it would reverse when the interest rate diffentials narrowed... so far, this is exactly what has happened.

I know different things have driven forex rates at different periods, so I don't assume this will be the same forever, but I don't believe we have unwound 15 years+ of carry trade in 2 days either.

So, if it's not the interest rate spread, what you do think was causing the extreme yen weakness?
sutebayashi
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Re: Switching funds to a more defensive/less growth oriented option

Post by sutebayashi »

The other elephant I see is the bloated BOJ balance sheet, which is as I noted in my last comment.

I think you have put your finger on the biggest cause of the yen’s relative strength in recent days which is carry trade unwind, rather than other changes in fundamentals. The carry trade unwind may have a ways to go yet possibly.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

The carry trade unwind was caused by a change in fundamentals. Borrowing in yen is getting more expensive, and the BoJ is now tightening monetary policy.

I’m not sure if the BoJ will hike again, but I am confident the Fed will be cutting soon and that’s another change in fundamentals that I expect to drive the yen higher.
Deep Blue
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Re: Switching funds to a more defensive/less growth oriented option

Post by Deep Blue »

Yen around 142–143 now, before the Federal Reserve has actually commenced the cutting cycle. With the BoJ hawkish and the yen still extremely weak as measured by PPP my money is on more yen appreciation to come:
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