Lombard Odier suggests a clever currency play on the yen

7th December 2012

Private bank Lombard Odier says that shorting the yen could be an interesting investment idea noting that Japan has a recorded a current account deficit for the first time in 28 years.

In a briefing note, Stephanie Kretz one of the investment strategy team at the private bank, writes: “If as we expect, this data point is not just a one-off, the Japanese government, whose debt now exceeds 200 per cent of GDP, would require non-domestic sources to fund its deficit.” This amounts to 8.2 per cent of GDP. She adds: “The household sector, reaching retirement age, has been a net seller of Japanese Government Bonds (JGBs) for the past three and a half years. As for the corporate sector, its purchases of JGBs has been decreasing over the past two years."

“Attracting foreign funds will prove very difficult unless there is a sharp weakening of the yen/and/or a rise in JGB yields. Going forward, the Japanese central bank will have no choice but to keep printing money to offset falling JGB demand from other sources.”

She says this surely means avoiding yen exposure but that an ‘interesting investment idea” during the Japanese slide towards eventual default is long Swiss franc/short yen exposure.



Leave a Reply

Your email address will not be published. Required fields are marked *