Forex Flash: Carry en-corre(lation) - Nomura

FXstreet.com (Barcelona) - Nomura strategists Saeed Amen and Geoffrey Kendrick have taken a look recently at the impact of the BoJ´s new monetary policy on markets, noting among other things, the likely positive impact on risk appetite, noting among other things, the likely positive impact on risk appetite and citing the likely re-allocation effect of capital from Japan to higher yielding assets.

They note that, at the same time, the correlation between risky assets and high beta FX has reached relatively low levels at present, levels where generally it has picked up historically. They can see that since the Lehman collapse, a pick-up in the correlation from the lows has generally been bullish risky assets. They write, “This fits in with our thoughts about the likely positive impact of the BOJ action on risky assets. We also examine how FX carry has been impacted historically by Fed QE and find that by and large carry has rallied. This also supports the view that the large-scale QE undertaken by the BOJ is likely to be bullish for carry and risky assets in general.”