Largest pension fund on the planet is making a killing on the weak yen

Japan’s Government Pension Investment Fund (GPIF) is the largest pool of retirement savings in the world. GPIF manages and invests the Reserve Funds of the Japanese Government’s Pension Plans entrusted by the Minister of Health, Labour and Welfare.

The fund is likely to report a second consecutive gain of around 5.6%, mainly thanks to the weak yen boosting the value of its foreign holdings.

Yen has tumbled sharply:

usdyen weekly 28 June 2022

EUR/USD rises above 1.06 to the best levels since June 10

EURUSD daily

The US dollar is broadly soft today but the euro and pound are particularly strong. I’m a bit wary of price action this late in the month and without a clear catalyst. German yields have risen 9.5 bps today compared to 5.7 bps in the US so there’s some spread support but that’s thin pickings.

Europe continues to face down a potential disaster with Russia natural gas imports severely curbed and a portion of US LNG exports offline.

Yen weakness creeps in as the BOJ fallout continues

The relief valve for last week’s frenzied trading was the Bank of Japan decision on Friday. It was a week where it felt like anything was possible after the Fed 75 bps hike and the surprise 50 bps from the Swiss National Bank.

But Kuroda and the BOJ kept their hand steady, leaving policy unchanged. The yen had rallied more than 200 pips on nerves ahead of the decision but gave it all back afterwards. That momentum is continuing today as all major global currencies make gains against the yen as Tokyo begins the trading week. Risk sentiment is also positive with S&P 500 futures up 25 points.

With that, USD/JPY is up 32 pips to 135.27. That puts it within striking distance of last Tuesday’s 24-year high of 135.60. If that level gives way it will accelerate yen selling and we could see a rapid squeeze higher as we chew into that late-90s top of 147.63.

USDJPY daily chart June 20

Société Générale says tail risk from Russia’s war on Ukraine make EUR virtually unbuyable

  • EUR/USD is undervalued relative to the current economic data and monetary policies, while the long-term outlook is clearly positive. The war in Ukraine and the coronavirus pandemic are both forcing a rethink in regards to fiscal policy -one that can break the deadlock which has left the ECB as the sole source of economic support over the past decade. A more active fiscal policy and an escape from super-low inflation could allow for a retreat from the negative rates that have anchored the currency. The real effective euro exchange rate has been almost 10%lower on average during the past decade than it was in the one prior to it,”
  • “In a post-war world,EUR/USD is more likely to trade in a 1.10-35 range than the 1.03-1.26 one it has been in since the start of 2015.Despite that,we think the euro is virtually unbuyable because the tail risks from the war are so big.The EUR/USD could fall by as much in a few days if gas supplies were to be cut off,as it would rise if the war were to remain in a stalemate at the end of six months.”
weekly candles eurusd 02 June 2022

ECB resigned to falling euro – report

Any efforts to support the euro via policy or even verbal interventions are unlikely, according to a report citing three ECB sources.

The falling currency is making it tough for the ECB to get inflation under control and today’s +7.9% German CPI report highlights just how far off base they are. But three ‘ECB insiders’ cited by Econostream Media say the currency won’t be a lever, even if the euro falls below parity.

The euro is up 25 pips to 1.0752 but has weakened a quarter-cent in the last half hour.

euro chart
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