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Japanese lifers’ see USD/JPY at 124.6 by Q1 2016 - Nomura

FXStreet (Mumbai) - Analysts at Nomura note that nine major Japanese life insurance companies’ investment plan for H2 FY2015 clearly indicates their preference for a higher USD, which is expected to remain supportive of USD/JPY next year.

Key Quotes:

“Major lifers’ financial results for H1 FY2015 showed that lifers continued to accumulate foreign assets, while their investment was concentrated in USD assets.”

“The hedge ratio for USD assets inched up though, likely owing to increased volatility in financial markets since mid-August.”

“We expect Japanese life insurance companies’
preference for USD assets to stay high into 2016, and the hedge ratio to resume declining after the Fed liftoff, likely in December.”

“The pace of the decline in the hedge ratio will depend on the timing of the second rate hike by the Fed.”

“The nine major life insurance companies’ investment plan for H2 FY2015 clearly suggests that they still have a strong incentive to increase their exposure to foreign bonds, while domestic yields stay low.”

“On average, major lifers expect USD/JPY to appreciate to 124.6 by end-March, expecting a slightly higher level than their plans released in April.”

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