Forex Flash: Tracking potential investment destinations of JCB-rich asset managers – UBS

FXstreet.com (Barcelona) - “Ever since the BoJ delivered their statement of intent last week, investors globally have been looking into potential investment destinations of cash/JGB-rich Japanese asset managers. After all, one of the stated intentions of the BoJ's 'intervention' is to encourage Japanese investors to head overseas, bringing down the yen in the process.” suggests Gareth Berry, a Research Analyst at UBS.

According to the latest Flow of Funds Q1 Report, Investment Trusts, Pension Funds and Life insurers have a combined £629tln in assets, of which only 22% is invested overseas. Size matters here - every 1% allocation represents more than $60bn of net inflows, enough to make any asset market take notice, not least the US Treasury Market which is probably figuring out who will be the marginal buyer if the Fed seriously starts thinking about taking a step back.

For example, according to the Securities Industry and Financial Markets Association (SIFMA), in 2012 foreign investors only increased their Treasury holdings by $374.4bn, the slowest pace in absolute terms since 2007: and just over a third of the net increase in issuance outstanding. Investors don't need long memories to recall that June 2007 was the month the Treasury curve (2y - 10y) finally ceased inversion, and the credit crisis began in earnest soon after.