M&G Investments is buying the yen on a wager the Bank of Japan will end its cap on the nation’s bond yields in the near future to help rein in inflation.
“They could do away with yield-curve control at any time now,” said Jim Leaviss, chief investment officer of public fixed income at the money manager, speaking at a briefing in Singapore. “The fundamentals of the Japanese economy do now permit a removal of YCC.”
Leaviss’s prediction of an imminent end to the BOJ’s super-easy policy contrasts with that of many of his peers, who see the central bank maintaining its current settings for some time yet. Recent economic data appear to back M&G’s case: Japanese inflation accelerated in April, putting more pressure on BOJ Governor Kazuo Ueda to normalize policy sooner rather than later.
The central bank will tighten policy by July, according to about two-thirds of economists surveyed by Bloomberg in April. Goldman Sachs Group Inc. and BNP Paribas SA are among those who forecast a policy tweak at the BOJ’s July meeting.
The yen currently looks attractive at around 141 per dollar and it’s an easier way to bet on a more hawkish BOJ than shorting Japanese government bonds, said Leaviss, whose firm oversees $366 billion.
The currency was around 141.90 on Tuesday, having tumbled almost 8% this year.
Japan will have both economic growth and inflation coming through, Leaviss said. Wage growth and the annual pay talks earlier this year, which provide important clues on future BOJ policy, were “not really consistent with the idea that the Japanese economy is stagnant,” he said.
(Updates yen levels and performance.)
