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JPY: Capital investment set to be revised higher in Q3 - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 1, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the Japanese yen has strengthened modestly in the Asian trading session supported by a further paring back of BoJ monetary easing expectations.

    Key Quotes

    “It follows the release overnight of the MoF’s corporate survey which revealed that capital expenditure was stronger than expected increasing by an annual rate of 11.2% in Q3. It will likely lead to an upward revision to economic growth in Q3 potentially erasing the initially reported contraction which signalled that Japan had entered technical recession. The survey supports the BoJ’s view that Japan’s economy is still recovering moderately and will help ease building concerns over weakness in business investment.”

    “The WSJ have also reported overnight that the Government Pension Investment Fund has decided to protect a small amount of its assets against currency fluctuations because it sees the euro declining in the short-term on expectations for further central bank easing.”

    “Bloomberg has reported comments from Hiroyuki Mitsuishi, who is a councillor at the GPIF, stating that “we have considered hedging and are in a position to utilise it at any time” although he refused to comment on whether they have started to hedge or not. It would mark a significant shift in investment strategy if the GPIF has started to hedge against currency fluctuations helping to dampen the yen weakening impact of capital outflows.”

    “The GPIF released yesterday their latest investment results for Q3. The results revealed a reduction in risk assets held at the GPIF. The share of domestic and international equites both declined to 21.35% and 21.64% respectively likely driven by the weakness in global equities at the end of the third quarter which followed the min-renminbi devaluation. In contrast the share of domestic bonds and international bonds both increased to 38.95% and 13.60% respectively.”

    “The report will reinforce expectations that the pace of diversification into risk assets will slow as allocations are now closer to the GPIF’s new targets. A slower pace of diversification into risk assets by the GPIF supports our view that the bulk of the adjustment lower for the yen is now complete.”
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