Mark Nash, a senior investment manager at Jupiter Asset Management, recently increased his bets on the appreciation of the Japanese yen. He believes that the Bank of Japan might raise interest rates in 2025, which would strongly support the yen. Nash stated that Japanese assets are currently undervalued, while U.S. real interest rates are high, providing investors with an excellent trading opportunity. Both factors are favorable for the yen. It is reported that Nash's absolute return bond strategy has performed excellently over the past five years, beating nearly 90% of his peers.
Currently, betting on the yen's strength has become the largest currency position in Nash's fund, accounting for about 15% of its total risk exposure. The London-based fund management company further increased its long yen positions this past Monday and bought currency pairs of the yen against the Swiss franc, Australian dollar, and New Zealand dollar.
Nash's view aligns with the earlier positions of Vanguard and RBC BlueBay Asset Management, both of which also believe that Japan's borrowing costs might rise, despite the market cooling its expectations for further tightening this year. In this context, accurately predicting the yen's exchange rate is particularly critical: previously, many traders made large bets on the yen depreciating, but the yen's unexpected surge in early August caused significant losses for them.
Nash predicts that if the Bank of Japan starts to gradually raise interest rates next year, ultimately increasing rates to 1%, the yen-dollar exchange rate could rise to around 130. Currently, the yen-dollar exchange rate fluctuates near 145.09.
Additionally, Nash has increased his bearish bets on 10-year Japanese government bonds to reflect his expectations of rising future interest rates. Conversely, he remains optimistic about the country's 30-year sovereign bonds.
Nash pointed out that due to the high-risk nature of yen carry trades, many investors have started to exit these trades. According to data from the U.S. Commodity Futures Trading Commission, for the first time since 2021, hedge funds turned bullish on the yen during the week ending August 13.
He concluded, "We truly believe the market landscape has changed, and investors should avoid engaging in carry trades. There are issues with Japan's policy, so a rebound in the yen is reasonable."
