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GPIF talk boost Yen crosses, stars aligned for further upside?

FXStreet (Bali) - Late in the US session, reports emerged, via Nikkei, that Japan’s GPIF will alter its allocation to 25% domestic stocks - now minimum required to avoid market disappointment - lower holdings of government bonds to 35% and increase allocation to foreign stocks, from 12% to 25%, news that gave Yen crosses a decent boost, despite being old news, with the original story being reported back on Oct 18.

While traders and investors around the world have been optimistic on a more aggressive GPIF asset allocation - benefit of the doubt has been given for quite some time - it seems clearer that local reports are now reinforcing the idea of a GPIF holding riskier assets, which should act as a major boost for equity markets both domestically - Yen negative - and internationally, although do not expect sudden flows as these type of macro-reallocation strategies tend to buy dips, with US indexes probably the preferred destination.

Interestingly, the renewed GPIF talk comes just one day after the Fed decided to end its QE3 program, with US yields on the short end - 2y - soaring, a communication of greater expectations of early rate hikes. If only the BoJ were to hint at further QQE at some point in the near future - very unlikely to be today - , it would appear as though all the stars are aligning for the macro Yen short trade to stay its course amid diverging US/Japanese fundamentals.

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