It seems the way to play Australia is to get ahead of the poor rich Japanese by just one step, and then bail on them:0)
quote.bloomberg.com
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Currency Focus
08/27 22:22
Japanese Look for Higher Yields in Australia: Rates (Update1)
By Angela Jones
Sydney, Aug. 28 (Bloomberg) -- Japanese investors may snap up Australia's bonds and currency in the coming weeks, seeking higher yields and gains in the local dollar as a shrinking Japanese economy threatens to push down the yen.
``We have been consistently purchasing Australian government bonds,'' said Toshifumi Sugimoto, who helps oversee 350 billion yen ($2.91 billion) at Meiji Dresdner Asset Management Co. in Tokyo. ``The Australian dollar is very attractive. Japan's economy has definite problems.''
Demand for Australia's assets may lift the nation's dollar to 60 U.S. cents by the end of the year from about 53 cents now, he said, a 13 percent gain.
The Australian dollar may rally as reports on wages, new buildings and retail sales signal the economy is growing faster than analysts expected. Releases like those may lift a currency that has already gained 10.5 percent from record lows in April. In Japan, government official Haruhiko Kuroda said the yen should decline after the nation today reported the jobless rate rose to a record 5 percent.
The interest rate on Australian bonds, which, at 5.57 percent, yield about 4 percentage points more than like- maturity Japanese debt, may create even more demand for its currency.
``Interest from Japanese investors in Australian bonds could see up to A$1 billion ($530 million) a month inflow into the Australian dollar over coming months,'' said Monica Fan, senior economist at RBC Dominion Securities Global markets.
`More Appetite'
The investment has been making money so far.
Australian bonds maturing in 10 years and longer have handed yen-based investors a gain of 5.4 percent in the past month, the best performance of 154 indexes compiled by the European Federation of Financial Analysts' Societies.
The Australian dollar, which is the first thing to react to overseas demand for the nation's assets, is poised to push higher. The mean forecast of 19 analysts, traders and investors surveyed by Bloomberg News is for the Australian dollar to rise as high as 55.40 cents before the end of the year, a 4.5 percent increase
``Japanese investors are finding more appetite for the Australian dollar,'' said Paul McNee, chief currency trader at Australian and New Zealand Banking Group Ltd. in Melbourne. ``They're buying Australian dollars to take the yield, and they're taking the currency exposure as well.''
Forecasts for a rallying Australian dollar and the accompanying overseas demand for the currency mark a change from last year, McNee said. As the currency declined in 2000, Japanese investors hardly bought at all, he said.
`Lot of Weight'
Japanese desire for yield is also spreading to Australian- dollar bonds being sold in Tokyo. The World Bank has sold A$815 million of bonds, while Westpac Banking Corp. issued A$600 million of debt there.
The opposite is happening in Japan, where investors are shunning yen debt on concern the government will be selling more of it to fund spending programs arranged to spur economic growth. The nation's monthly 10-year bond sale last week drew the lowest demand since April.
Politicians are also pressuring the Bank of Japan to try to spur inflation as a way to help the economy, something that'd makes it tougher for investors to buy bonds that now yields just 1.405 percent, analysts said.
A Skeptic
Not everyone is betting Japanese appetite for Australian assets will last.
Currencies such as the euro or the British pound may outperform the Australian dollar as money managers look for places to invest around the world.
``People are putting a lot of weight on what has been, so far, a trickle'' of Japanese investors buying Australian-dollar bonds, said Greg McKenna, currency strategist at National Australia Bank Ltd. ``There's every chance that capital doesn't come here.''
Australia's assets are still attractive enough to lure money from Japan. For one thing, Australian 10-year yields of 5.57 percent are higher than 4.92 percent in the U.S., which is also competing to lure money from Japan.
In the U.S., another place that vies for Japanese money, an economy that's expanding at it's slowest pace in eight years may pull the currency there lower.
Australian yields may become even more attractive should the Federal Reserve cut U.S. interest rates for an eighth time this year. The Reserve Bank of Australia will probably refrain from lowering rates, analysts said.
``We've got a good source of potential buying interest in the Aussie dollar,'' said Richard Franulovich, an economist at Westpac Banking Corp.
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