Australia's Top Pension Fund Bets Big on Yen

Australia's second-largest pension fund, Australian Retirement Trust (ART), is taking an unconventional stance on the yen. According to ART's senior portfolio manager Jimmy Louca, the market has undervalued the Japanese currency, which he believes will strengthen further.

Louca pointed out that the current exchange rate of around ¥160 per dollar underestimates the likelihood of additional rate hikes by the Bank of Japan (BOJ) and is betting on a stronger yen. The fund has spent the past six months building its yen positions while trimming its U.S. dollar exposure.

The market consensus has been shorting the yen based on Japan's reliance on energy imports and the BOJ's limited tightening stance, but Louca disagrees. He believes that the implied probability of a BOJ rate hike in September stands at around 80%, with a 100% probability priced in for October.

ART's Japan-related positioning extends beyond currency markets, as it has increased its allocation to Japanese equities, particularly in the financial sector, which will benefit from rising rates. The fund also maintains an underweight stance on U.S. Treasuries, citing above-target inflation and surging capital demand driven by the artificial intelligence investment boom.