Yen May Rise 15% on Rates, Safe-Haven Bets, Says BNP Paribas Asset
The yen may strengthen to around 130 per dollar on rising Japanese interest rates, according to BNP Paribas Asset Management.
Once one of the world’s most-sold currencies, the yen may rise 10 to 15% from current levels as the Bank of Japan raises interest rates and the Federal Reserve continues its easing policy, according to James McAlevey, global head of aggregates and absolute returns. Fears of a deepening global trade war are also fueling demand for safe havens — which the yen will benefit from.
“The BOJ is tightening for good reason because inflation looks a little more sustainable,” McAlevey said in an interview Monday. The currency is also now “responding to the ‘risk-off’ days in a way that it hasn’t before.” Traders have long viewed the Japanese currency as cheap after four straight years of losses, a victim of the country’s wide exchange rate differential with the U.S. But even sophisticated investors have blundered repeatedly by buying yen too early, underscoring how fragile sentiment remains around the world’s third-most-traded currency.
Japan’s once-extreme exchange rate gap with the U.S. pushed the yen to a multi-decade low of 161.95 per dollar in July before a gradual recovery to around 150 this week. Hedge funds have also become less bearish, with net shorts on the Japanese currency now at least since October, the latest Commodity Futures Trading Commission data show.
McAlevey was among those who got in too early last year, and exited his bullish yen position in late 2024 “when it didn’t work out.”
“We’re back in now,” said McAlevey, who has about a quarter-century of investing experience. He started buying yen again about a month ago. It’s been a profitable trade so far, given that the yen has strengthened 1.6% against the dollar in the past month.
“The yen looks cheap and the dollar looks expensive, so you put the two together and you’ve got a pretty potent recipe for dollar-yen,” he said.
The swap pricing lends credence to McAlevey’s view of a narrowing U.S.-Japan interest rate gap: traders see the Fed cutting another 75 basis points by year-end, and more than one quarter-point BOJ hike over the same period. Economic data also supports the case, with Tokyo rates holding above the BOJ’s target just as a slowdown in U.S. consumer spending and manufacturing suggests the U.S. is edging closer to stagflation.
For a 15% rise in the yen, however, more drivers may be needed, McAlevey said. “There’s going to be a much more volatile FX backdrop for that to happen, it’s going to have to be a structurally weaker dollar backdrop across the board,” he said.
McAlevey helps manage the BNP Paribas Global Enhanced Bond 36 million fund that gained 12.30% in the three years to Jan. 31, versus a benchmark gain of 7.51%, according to the firm’s fact sheet. He helps oversee assets worth about 7.5 billion euros ($8.1 billion).
Source: Bloomberg
