Cooling US inflation is proving to be a gamechanger for Nikko Asset Management Co.’s Yasushi Ishikawa. He’s ditched his bearish view on the yen, and now has a 135 target against the dollar by year-end.
(Bloomberg) — Cooling US inflation is proving to be a gamechanger for Nikko Asset Management Co.’s Yasushi Ishikawa. He’s ditched his bearish view on the yen, and now has a 135 target against the dollar by year-end.
US real yields are likely to fall quicker than those in Japan as prices there are “coming down with a higher degree of certainty,” said Ishikawa, Nikko Asset’s senior executive director of global multi asset. Before data last week showed US inflation at the slowest in two years, he thought it was possible the yen would weaken as far as 150.
Kazuo Ueda, governor of the Bank of Japan – which holds a monetary policy meeting next week – will bide his time in changing policy because he still “needs some evidence” that inflation will stick, said Ishikawa. The prospect of higher prices taking hold in the world’s third-biggest economy also means the Tokyo-based fund manager is becoming more bullish on Japanese equities.
The shift in his view highlights potential upside for the yen, where inflation-adjusted interest rates have exacerbated its decline to multi-decade lows. It also exposes frantic repositioning as the looming end to the dollar’s dominance stands to benefit Japan’s currency.
His view comes on the back of a 2.4% gain for Japan’s currency last week — the best since January — in a move that’s forced yen bears to re-evaluate whether their bets will ultimately pay off. It’s still down more than 6% this year, the worst-performing major currency.
For stocks, “the weak yen is a big opportunity,” said Ishikawa, who’s also head of Nikko Asset’s equity fund management department. Exchange reforms, as well as support for the semiconductor industry from the government, sustainable inflation and wage growth are underpinning this view, and overseas investors are becoming more interested in the country’s markets, he said.
Nikko Asset Management had about $209 billion under management as of the end of March.
The yen was trading at 139.64 to the dollar at 7:30 a.m. in Tokyo on Thursday.
The yen’s advance as far as 137.25 on Friday, its strongest in two months against the dollar, coincides with a slide in Japanese government bonds as investors add to bets the central bank may relax its grip on 10-year bond yields by the end of July.
Even amid speculation that the BOJ may adjust yield-curve control next week, Ueda is cautious on changing policy, Ishikawa said. “To confirm inflation is real, you have to wait another year,” he said.
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