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Ashley Davies of UBS says that significant outflows from Japan indicates resumption of carry trade, and adds that he is bullish on the Yen. He says that a marginal impact on the rupee is seen due to carry trade, but no major volatility is seen in forex markets due to the same.
Excerpts from CNBC-TV18's exclusive interview with Ashley Davies:
Q: Is there any anecdotal evidence to suggest to you that maybe this trade is opening up again, the yen carry trade?
A: Certainly, this year we have seen significant outflows from Japan on the short-term bank lending side. So that is a very strong indication that there has indeed been a sizeable carry trade affecting the markets and keeping the yen persistently weak this year.
Q: What’s been the experience in the last one month; could you tie in the recent movements of the yen versus other currencies and whether it is suggesting that it is getting more attractive to do that carry trade again?
A: There has been a significant carrying back of rate tightening expectations from the BoJ. So if you look at the yen weakness that we are seeing, that can almost entirely be explained by a shift in new differentials in favour of foreign currencies over the yen. So that has certainly been an effect.
I am estimating an order of about 3-4 trillion yen in outflows each month from Japan, which probably one could attribute to the short term bank lending abroad, which is probably the best proxy for carry trade.
Q: Would you have anecdotal evidence of which financial assets this money is coming into now?
A: We don’t have a very good breakdown as to where the data goes. All we know is that there are outflows from Japan, but the actual breaking down of where it ends up is quite difficult to discern.
I don’t want to overemphasize this too much. I don’t want to say that given the sort of mal-trajectory that we have got for the BoJ, its rate tightening has caused massive disruption to global markets. It has been an element, but I am not saying that we should be expecting a huge rise in volatility in the fixed markets as a result.
Cont'd on page 2...
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Today's Special Column
with Pronab Sen
Union Ministry of Statistics and Programme Implementation , Chief Statistician and Secretary


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