Australian Pension Fund Bets Big on Yen Amid BoJ Hike Expectations

Australia's second-largest pension fund, Australian Retirement Trust (ART), has taken a contrarian bet on the Japanese yen. According to a Bloomberg report published on August 27, ART is now overweight on the yen, its biggest position in years.

The move represents a bet that markets are underestimating the scope for interest-rate hikes by the Bank of Japan (BoJ). The fund's senior portfolio manager, Jimmy Louca, believes that while energy costs have been factored into prices, the likelihood of further BoJ tightening is underestimated.

Louca says the yen looks 'very cheap', with fair value at around 150 yen to the US dollar. He expects the yen to strengthen into the high 140s, compared to its current rate of about 159 yen per US dollar.

The fund has partly financed its yen position by reducing its exposure to the greenback. ART holds an underweight position in US Treasuries, reflecting concerns that above-target inflation and strong capital demand could keep yields elevated.