Australian Pension Fund Bets Big on BOJ Rate Hike Amid Yen Weakness

Australia's second-largest pension fund, Australian Retirement Trust (ART), has accumulated yen at its highest level in years as it bets on a shift in the policy path of the Bank of Japan (BOJ).

The fund's senior portfolio manager, Jimmy Louca, says ART added to its position primarily as the yen approached 160 against the US dollar, with part of the funding coming from reduced US dollar exposure.

Louca disagrees with the prevailing market view that the BOJ would not hike rates quickly amid elevated energy prices. He points out that the drag from rising energy prices on the yen has already been fully priced in, while market expectations for BOJ rate hikes remain insufficient.

The yen fell to a 40-year low last month, but Bloomberg data shows interest-rate swap markets are pricing roughly an 80% probability of a BOJ rate hike in September. Louca also expects Japanese government bond yields could rise further if the BOJ's actions broadly align with his expectation.