Forex Video : Continued JPY Weakness

On CNBC World Wide Exchange ACM Advanced Currency Markets Chief Market Analyst Peter Rosenstreich discusses continued JPY weakness and attractiveness of interest rate differential trades.

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Louisa Bojesen
We promised you that we’d be talking about the currency markets, and indeed, we are. Let’s focus in on
these currency markets. We’re joined by Peter Rosenstreich, Chief Market Analyst at Advanced
Currency Markets. Peter, I also promised that we’d be taking some viewer questions. A viewer writes in
and says, ‘If the circumstance in Japan is as agregarious as Japanese authorities suggest, and if we add
to the consideration the drop in exports and hotel purchases, what may be said of the deleverage in
dynamic that was Yen supportive? What can possibly support the Yen now?’ I think this e-mailer, even
with a word as gregarious, really hits the key of the majority of our viewers today, Peter.

Peter Rosenstreich
Absolutely. Well, I think one thing that needs to be said is that we’ve been bearish on the Yen for quite a
while. It was just a matter for the market to sort of come around and start looking at the underlying
fundamentals to really realize that the Yen has been way too strong for too long because of that risk
aversion trade. One of the things that needs to be looked at besides the underlying fundamentals, which
are deteriorating at a very rapid rate, is the dynamic between the local investors repatriating funds and
the external investors pulling money out of Japan. Ten years ago, that number in terms of the locals
versus the international investors, were sort of much more balanced. The local investors owned much
more of the market, but now the foreign investor owns a significant portion and are now repatriating their
capital out of Japan at a very, very rapid rate. The slim hope that repatriation back into Japan by local
investors would keep the Yen supported I think is losing a lot of steam, and something that people are
really taking a look at to see how quickly we get to the 100 levels.

Maura Fogarty
Peter, Maura here in Asia. Is there any chance at any point traders in the market can start looking at
interest rate differentials again, or are we still dominated by risk aversion and worries about the financial
sector?

Peter Rosenstreich
Well, at this point, the simple equation of the carry trade or interest rate differential trade brings into
volatility is a very important component, not just the differential. Right now, because volatility is so high,
that attractiveness of carry trade is still very, very low. There’s always a good reason to keep an eye out
for interest rates, especially when volatility starts to decline. At this point, where we are literally today,
those type of trades probably should not be put on because any gains you’ll be making in the interest rate
will be quickly outstripped by the volatility of the market. However, with the depreciation in the Yen,
stabilisation in countries like – stabilisation in terms of interest rate around 2% in Australia, we can start
seeing those trades start coming back on the table relatively quickly, say Q2 of this year.

Brian Shactman
Peter, no question from me because we’re out of time. It’s always tight on time with you. We wish we
had more. Appreciate the insight, though. Peter Rosenstreich, Chief Market Analyst at Advanced
Currency Markets. Good to have him on the programme.