How to Trade the Yen's Slide
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Investors are eagerly awaiting more easing from the Bank of Japan, but this strategist says the trading opportunity is not so simple.
If you've been selling the yen lately, congratulations. The Japanese currency has been sliding on expectations that the Bank of Japan will ease policy further in another attempt to boost the economy, and the yen recently hit a four-month low against the dollar .
With a Bank of Japan meeting looming at the end of October and a news report that the Bank of Japan may be about to increase its quantitative easing efforts significantly, should you sell the yen now?
Not exactly, says Rebecca Patterson, chief investment officer at Bessemer Trust.
"If you're short yen, I would stay short into this meeting on October 30," she told CNBC. "If you're not in the trade yet, though, I think it has run quite a bit and I would be more inclined if you don't already have a short yen position to wait a bit."
The key is the difference in interest rates between the U.S. and Japan, Patterson says. The 10-year Treasury yield is about 1.83% higher than the comparable rate in Japan, and she says that is near the top of end of the range for the pair. If risk appetite fades ahead of the U.S. election, and investors move out of equities into bonds, Patterson argues that "that should support bonds and push down the yields. I think that could give you a better entry level into this trade."
In terms of specific levels, Patterson recommends waiting for a move back to around 79.50, an important technical level, to enter a short yen trade against the dollar. She wants to set a stop around 78.80 and a target of 81.00.
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