Kelvin Tay, regional chief funding officer of UBS International Wealth Administration, stated in an interview with CNBC that getting into the Japanese market right now is like catching “a dropped knife.”Squawk Box Asia“.
His remarks got here because the Nikkei 225 and Topix continued to fall, falling greater than 12% and getting into bear market territory. The Nikkei fell 12.4%, its worst day since “Black Monday” in 1987.
“The one motive the Japanese market has risen so strongly over the previous two years is that the yen has been very, very weak. As soon as there is a reversal, it’s important to exit appropriately, and I feel they’re all exiting because of this now,” Tai stated.
Japanese yen, of which Weak to 38-year low 161.99 In June, on the eve of the Financial institution of Japan’s coverage assembly, the yuan reversed towards the greenback.
sharply strengthened After the Bank of Japan raised interest rates Final week, it lowered its benchmark rate of interest to round 0.25% and determined to scale back purchases of Japanese authorities bonds.
at current, JPY It final traded at 144.82, its lowest degree towards the greenback since January. A stronger yen has weighed on Japanese shares, that are dominated by buying and selling and export-oriented corporations, undermining their competitiveness.
Financial institution of Japan Governor Kazuo Ueda sounded robust on the press convention after the central financial institution’s assembly on July 31, saying “if the financial system and value developments are according to our forecasts, we are going to proceed to boost rates of interest.” Reuters reports.
He additionally stated coverage charges had been “fairly a methods off” from reaching a impartial degree that might neither cool nor overheat the financial system.
Ueda additionally stated Rates of interest at 0.5% (one thing Japan has not seen since 2008) usually are not an impediment and charges could possibly be larger.
Yen Barometer
Tay stated the yen might present whether or not the Japanese market will carry out properly. Shares fell because the yen strengthened and “sadly, Japanese shares are nonetheless beneath better strain,” he stated.
Whereas Tai acknowledged that a few of the market’s positive aspects had been as a result of Tokyo Inventory Change’s company restructuring efforts, “the primary driver was the yen.”
One of many explanation why the yen is so vital within the Japanese market is the so-called ” The closing of the “yen carry trade”.
When the yen is weak and Financial institution of Japan rates of interest are zero or adverse, traders borrow yen and make investments the proceeds in higher-yielding belongings.
Utilizing the central financial institution’s benchmark rate of interest as a information, traders might borrow yen at 0% earlier this yr and make investments the cash in the US, incomes 5.25% curiosity.
Now, because the Federal Reserve alerts an rate of interest reduce and the Financial institution of Japan raises rates of interest, the rate of interest differential between the 2 central banks will slender, making the “carry commerce” much less enticing, which can lay the muse for the appreciation of the yen.
Tay expects the yen to commerce at round 143 to the greenback, however might rise to 135 if Japanese life insurance coverage corporations and pension funds begin sending extra yen again to Japan.
“So, sure, it [the yen] A degree could also be discovered, however in the mean time, Japanese shares are nonetheless not enticing sufficient for me to really wish to get into.
