In March, there was a huge depreciation in the yen. Around the same time, interest rates in India were also on an uptrend. This prompted companies in India to raise at least USD 5 billion via the external commercial borrowing, or ECB, route.
Reliance Ports, Reliance Utilities and some other group companies raised USD 1.2 billion in March alone. While ADAG entities like Reliance Energy, Reliance Telecom, and Reliance Communications raised USD 640 million. Bharti raised around USD 3 million, JP Associates around USD 250 million, Rural Electrification Corporation USD 200 million, IRFC USD 125 million, among others.
All these companies had one thing in common they tied up loans when the yen was depreciating, which was to be settled in dollars. Now, the tide is set to turn. Rising interest rates of the yen may push costs of yen-carry-trade, which is a swap cost for borrowing in the yen and converting into the dollars to invest and take advantage of low interest rates on the Japanese currency. The Bank of Japan, or BoJ, may raise interest rates in its August 23 meeting. Could this move hit the yen-carry-trade?
Tohru Sasaki, Chief Forex Strategist, JP Morgan Chase Bank, expects a 25 bps rate hike by BoJ. He feels that the move may not hurt the yen-carry-trade much.
Mark Tan Keng Yew, Director at UOB Asset Management, is not bothered with the yen-carry-trade situation. On whether he sees some kind of unwinding in the yen-carry-trade, as the yen went back to 118, he said, “Looking at the yen, it doesn’t seem to me to be a leading indicator of what is happening in the markets. It seems to be a coincidental indicator of the market situation. What I will be looking at more closely is the extent of lending that is coming through from the US and whether there is going to be any tightening of credit in other parts of the world.”
Chin Loo, Senior Currency Strategist, BNP Paribas, feels that US payrolls will be the near-term trigger for the dollar-yen movement. She has pegged the yen's base to be around 117.5 to the dollar, while the upside will be capped at 120.5.
Reliance Ports, Reliance Utilities and some other group companies raised USD 1.2 billion in March alone. While ADAG entities like Reliance Energy, Reliance Telecom, and Reliance Communications raised USD 640 million. Bharti raised around USD 3 million, JP Associates around USD 250 million, Rural Electrification Corporation USD 200 million, IRFC USD 125 million, among others.
All these companies had one thing in common they tied up loans when the yen was depreciating, which was to be settled in dollars. Now, the tide is set to turn. Rising interest rates of the yen may push costs of yen-carry-trade, which is a swap cost for borrowing in the yen and converting into the dollars to invest and take advantage of low interest rates on the Japanese currency. The Bank of Japan, or BoJ, may raise interest rates in its August 23 meeting. Could this move hit the yen-carry-trade?
Tohru Sasaki, Chief Forex Strategist, JP Morgan Chase Bank, expects a 25 bps rate hike by BoJ. He feels that the move may not hurt the yen-carry-trade much.
Mark Tan Keng Yew, Director at UOB Asset Management, is not bothered with the yen-carry-trade situation. On whether he sees some kind of unwinding in the yen-carry-trade, as the yen went back to 118, he said, “Looking at the yen, it doesn’t seem to me to be a leading indicator of what is happening in the markets. It seems to be a coincidental indicator of the market situation. What I will be looking at more closely is the extent of lending that is coming through from the US and whether there is going to be any tightening of credit in other parts of the world.”Chin Loo, Senior Currency Strategist, BNP Paribas, feels that US payrolls will be the near-term trigger for the dollar-yen movement. She has pegged the yen's base to be around 117.5 to the dollar, while the upside will be capped at 120.5.
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