The Yen Is Becoming Too Hard for Some Investors to Trade

Résumé détaillé

After a year of wild swings, the yen surprised traders by settling into a tight range clustered near 158 per dollar over recent months. But on Wednesday it broke out again, unexpectedly weakening toward 160.

(Bloomberg) -- After a year of wild swings, the yen surprised traders by settling into a tight range clustered near 158 per dollar over recent months. But on Wednesday it broke out again, unexpectedly weakening toward 160.

The sudden move underscores just how difficult Japan’s currency has become to trade. Traditional signals such as interest-rate differentials have become less reliable guides, while Bank of Japan tightening, persistent capital outflows and unprecedented intervention have pulled the yen in competing directions.

The stakes extend far beyond Japan. The yen is one of the world’s most heavily traded currencies, changing hands in some $1.6 trillion of transactions each day. Its direction can make or break the fortunes of global investors, while its longer-term trajectory has implications for everything from Japanese inflation to the flow of the nation’s vast pool of savings into overseas markets.

“The challenge is that these competing forces have made the timing and magnitude of yen moves much harder to anticipate,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA, which manages about 600 million Swiss francs in assets. “I have therefore reduced my yen positions to reflect the greater uncertainty.”

There are compelling reasons to buy the yen: the BOJ has raised interest rates at the fastest pace since 1990, yields at home are near multi-decade highs and officials in both Tokyo and Washington have shown a willingness to intervene when the currency falls too quickly.

But reasons to sell are equally powerful. Japanese interest rates remain well below those in the US and other major economies, and some investors see the BOJ as moving too slowly to close the gap. That keeps carry trades attractive, while the nation’s companies, institutions and households continue deploying large amounts of capital overseas.

Long-term views are sharply divided, with Marlborough Investment Management’s James Athey expecting significant yen…

Others…

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