By Matthew Brown
Jan. 18 (Bloomberg) -- Currency strategists are more in
sync than any time since the depths of the financial crisis,
increasing incentives to bet against the yen after the carry
trade lost money in December for the first time in 10 months.
Forecasts for the euro, yen and Swiss franc from 61
Bloomberg survey contributors are within 9 cents of the mean on
average, down from 11 cents a year ago. They haven’t been so
unified since Lehman Brothers Holdings Inc.’s 2008 bankruptcy.
The predictions’ so-called standard deviation fell 16 percent
last quarter, the biggest drop in at least two years, after
jumping 48 percent in the three months after Lehman’s demise.
The growing consensus signals that foreign-exchange swings
will decline, luring investors to sell currencies from countries
with lower interest rates to buy higher-yielding ones. That may
weaken the yen and franc, and rein in the resurgent dollar.
Japan’s currency, which fell 6.6 percent since its 14-year high
of 84.83 per dollar on Nov. 27, may be the biggest loser as
Prime Minister Yukio Hatoyama fights deflation and a recession.
Declining volatility and the rising U.S. currency means
“people are thinking about alternatives to the dollar as a
funding vehicle, and the yen is the obvious candidate,” said
Richard Franulovich, a strategist in New York at Westpac Banking
Corp., Australia’s second biggest bank. “Not only do they
already have low rates, the authorities are talking about a new
quantitative-easing program. There’s a big fiscal expansion
playing out under the new government, and the currency had a big
rally last year.”
Carry Returns
Westpac was one of 2009’s 10 best yen forecasters, data
compiled by Bloomberg show. Selling yen to buy Australian and
New Zealand dollars, Norwegian krone and Brazilian reais
returned 33 percent last year. Using the dollar earned 31
percent.
Funding the carry trade with the greenback lost money in
December for the first time since February as the U.S. currency
gained 4.8 percent against the euro amid growing confidence in
the U.S. economy and expectations that the Federal Reserve will
raise borrowing costs by June. Futures trading on Dec. 31
suggested a 62 percent chance the Fed would increase its
benchmark to at least 0.5 percent by mid-year from a range of
zero to 0.25 percent, up from 30 percent in November, Bloomberg
data show. The Bank of Japan’s target rate is 0.1 percent.
Buying and selling high- and low-yielding currencies to
take maximum advantage of global rate moves gained 19 percent
from February to November, the carry trade’s best nine months
since 2003, a Royal Bank of Scotland Plc index shows. The index
fell 0.9 percent in December.
‘U-Turn’
“The U-turn in the dollar led to a reverse carry trade in
December where people were selling the commodity currencies,”
said Theodore Chen, a quantitative analyst at RBS in London who
oversees the index.
Rapid exchange-rates swings tend to erode the carry trade’s
profits. Greater certainty about the direction of currencies
this year may help damp volatility, reducing the chances of a
repeat of December’s turnabout.
Risk returns have shifted in favor of the yen since late
last year, as measured by the Sharpe ratio, a gauge of gains
that takes volatility into account. In the year ending Nov. 30,
selling the dollar versus the currencies of Australia, New
Zealand, Norway and Brazil had a risk-premium ratio of 2.31,
compared with 1.24 for the yen. Since then, the ratios are 2.71
for the yen and less than zero for the dollar.
‘Faster Pace’
“Yen volatility can come down at a faster pace than dollar
or Swiss crosses, making it more useful as a funding source
going forward,” said Paul Mackel, the director of currency
strategy at HSBC Holdings Plc in London. “There’s going to be a
reflating of the yen carry trade.”
Analyst forecasts on the yen against the dollar varied from
the mean by 9 cents at the end of last week, compared with 10
cents at the end of 2008, Bloomberg data show. Dollar forecasts
against the euro also had a standard deviation of 9 cents last
week, down from 12 cents. For the Swiss franc, the figure fell
to 8 cents, from 11 cents. The Swiss National Bank’s key rate is
0.25 percent.
JPMorgan Chase & Co.’s index of volatility in the Group of
Seven currencies has fallen 12 percent this year, the most since
the two weeks beginning March 27, 2009.
Yen Forecasts
Carry-trade returns will benefit this year from the yen
weakening 7.2 percent to 98 per dollar from 90.93 today,
according to the median forecasts in Bloomberg surveys. The
franc is predicted to weaken 4.8 percent to 1.08 per dollar.
The dollar has the least bearish outlook -- a 1 percent
decline to $1.45 per euro, from $1.4362. Bets on gains for the
IntercontinentalExchange Inc.’s Dollar Index -- a gauge against
the euro, yen, pound, Canadian dollar, franc and Swedish krona -
- outnumber bearish wagers by 6 to 1, the most since March.
Even assuming stable currencies, buying 12-month bills in
reais, kronor, Australian and New Zealand dollars with Japanese
yen will return 5.2 percent more than holding equivalent-
maturity Japanese bills, compared with 5 percent for the same
trade with the dollars.
‘Disastrous Strategy’
Selling the yen against that basket of currencies lost
investors 34 percent in 2008 as volatility on the Japanese
currency against the dollar rose to 26 percent in December, the
most since at least 1991. Using the dollar as the funding
currency lost 17 percent.
“The carry trade works under conditions of low volatility,
which is why it was the most disastrous strategy in 2008,” said
Stuart Thomson, a Glasgow-based fund manager at Ignis Asset
Management, which oversees $100 billion.
Yen volatility is likely to decline as the Bank of Japan
keeps its benchmark rate on hold through next year as it battles
deflation, according to median forecast of 28 economists.
Japanese consumer prices are forecast to fall 1.3 percent
in 2009, by the same amount in 2010 and a further 0.3 percent in
2011, according to median economist forecasts in Bloomberg
surveys. The country’s economy will expand 1.4 percent in 2010,
after contracting 5.3 percent last year, the estimates show.
In Switzerland, inflation will hold at 0.6 percent through
2010, the Bloomberg survey shows. In the U.S., there is an 80
percent chance the Fed will raise its key rate to at least 0.5
percent by the end of the year, futures trading shows. The U.S.
economy will grow 2.7 percent this year, according to the median
of 57 economists’ forecasts compiled by Bloomberg.
Brazil, Norway
In Brazil, the central bank will increase its rate to 10.5
percent from 8.75 percent as growth accelerates to 4.75 percent
from 0.2 percent in 2009, according to Bloomberg surveys. Norway
will lift its rate to 3 percent from 1.75 percent, and
Australia’s will rise to 5 percent from 3.75, the polls show.
Japanese Finance Minister Naoto Kan said Jan. 14 there are
“still various policy measures that can be taken,” signaling
the Bank of Japan will take further action to aid the economy.
Morgan Stanley, Goldman Sachs Group Inc. and Pacific Investment
Management Co. analysts said this month the central bank may
increase the amount of money it adds into the economy through
purchases of government bonds to combat deflation.
The Democratic Party of Japan’s popularity has slid since
it came to power for the first time four months ago promising to
end 20 years of economic stagnation. Prime Minister Hatoyama’s
approval rating was at 56 percent this month, compared with 75
percent when he took office, the Yomiuri newspaper said Jan. 11,
without giving a margin of error.
Japanese Exporters
A weaker yen will benefit Japanese exporters, including
Toyota Motor Corp., the world’s largest manufacturer of
automobiles, and Sony Corp., which is forecasting a second
annual loss. Japan exports more than it imports, giving it a
current-account surplus every year since at least 1986, when
Bloomberg began collecting the data. Exports accounted for 14
percent of Japanese gross domestic product in the third quarter,
compared with 11 percent in the U.S.
The policies of the government and central bank are “a
signal to the market, saying ‘Hey, use the yen as a carry trade
because we’ll be back into the market printing lots of yen to
push the currency lower,” said Axel Merk, president of Merk
Investments LLC in Palo Alto, California, and manager of the
$477 million Merk Hard Currency Fund.
Some analysts predict the yen will rise against the dollar
as the U.S. currency suffers more from a global slowdown. Eisuke
Sakakibara, formerly Japan’s top currency official, said the
global recovery may slow in the second quarter, pushing Japan
into a double-dip recession and weakening the dollar to 85 yen
from 90.85 today.
“Should the U.S. experience a relatively weak rebound from
spring to summer there’s a high possibility the dollar will
drop,” said Sakakibara in a Jan. 15 interview in Tokyo.
To contact the reporter on this story:
Matthew Brown in London at
mbrown42@bloomberg.net.
Source:http://www.articlesbase.com/operating-systems-articles/fix-outlook-0x80042109-error-with-registry-cleaner-1234190.html
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