- Upcoming rate hikes could drive an increase in hedging costs for Japanese investors, redirecting flows into unconventional assets and regions.
- Hedged yield pickup is naturally governed by the relationship of the spot and forward FX rates, which in turn are driven primarily by short-term interest rates.
- Going forward, we expect a recalibration of Japanese flows as central banks are inevitably pushed to raise rates and hedged yield gaps converge, dissuading foreign investment and redirecting flows to domestic markets and into corporates.
For further details see:
Japan's Search For Surplus Yield