24 Jun 2013
Flash: Japanese equity sell-off runs its course? – UBS
FXstreet.com (New York) - According to Research Analyst Gareth Berry at UBS, “UST yields are still pushing higher in the wake of last week's FOMC decision – crucially though, JGB yields have not followed suit.”
This spread widening will, over time, incentivize Japanese real money investors to shift funds abroad. “Although Japanese investors have been net sellers of foreign bonds for each of the past five weeks, we would not be surprised to see yen outflows return soon, especially given our asset allocation team see fair value for the UST 10y yield at 2.9% in 2013.” Berry adds.
Moreover, the savage selloff in Japanese equities appears to have run its course, for now at least. That means rising US yields will have greater freedom to boost THE USD/JPY without having to push against selling pressure due to softer equities. Equities are not out of the woods yet of course, but at least US stocks seem to have already found a foothold in the wake of last week's FOMC decision, and the selloff there was not at all severe.
This spread widening will, over time, incentivize Japanese real money investors to shift funds abroad. “Although Japanese investors have been net sellers of foreign bonds for each of the past five weeks, we would not be surprised to see yen outflows return soon, especially given our asset allocation team see fair value for the UST 10y yield at 2.9% in 2013.” Berry adds.
Moreover, the savage selloff in Japanese equities appears to have run its course, for now at least. That means rising US yields will have greater freedom to boost THE USD/JPY without having to push against selling pressure due to softer equities. Equities are not out of the woods yet of course, but at least US stocks seem to have already found a foothold in the wake of last week's FOMC decision, and the selloff there was not at all severe.