-- Vanguard Group Inc.’s Ales Koutny says the market is underestimating just how hawkish the Bank of Japan will need to be this year to boost the beleaguered yen.Apple Apologizes for iPad Pro Ad, Scraps Plan to Air It on TV
“We think markets are underpricing the BOJ,” Koutny said in an interview on Wednesday at the firm’s London offices, arguing that authorities will be “uncomfortable” with a dollar-yen rate above 155. “For all the noise last week about intervention, we are already above that again. They understand that the only way to really get out of that is for Japan to send a fairly hawkish message.”
The currency will only manage a “continuous bullish move” toward fair value — which Vanguard sees around 100 per dollar — if the global economy sees a significant slowdown, prompting Japanese investors to reduce their foreign asset exposure, he said. In the short-term, the firm would turn neutral on the yen if the BOJ starts to reduce QE or hikes rates.
A sale of Japanese 10-year government notes drew tepid investor demand on Wednesday, reflecting a reluctance to buy given the risk of a selloff with the BOJ projected to end its bond-buying program and tighten again. Still, that repricing would likely trigger a flood of inflows from both domestic and overseas buyers, which would also help the yen, Vanguard’s Koutny said.
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