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Global fx summit 2013
1. global fx summit 2013
The Changing
A man looks at stock
index board showing
various countries
stock price index
FX Landscape
outside a brokerage
in Tokyo November
22, 2012. REUTERS/
Kim Kyung-Hoon
T
he Bank of Japan’s unprecedented stimu- Investors are also grappling with new regulations in
lus plan announced in early April has raised Europe and the United States that are effectively
concerns about “currency wars”, injecting the changing forex trading practices while in Asia regula-
world’s largest and most liquid financial market with tors are trying to inject more transparency in illiquid
volatility. That has also triggered a surge in currency currency markets. The issues and challenges facing
volumes across all trading platforms. At the same the $5 trillion-a-day foreign exchange market were
time, the crisis in Europe rages on, with political explored at the first-ever Reuters Global FX Summit
uncertainty gripping Italy—euro zone’s third larg- on April 22 when during closed sessions reporters
est economy--- and investors speculating which euro and editors in London, New York, Singapore, Mum-
zone country would be the next to seek a bailout, bai and Tokyo interviewed the industry’s top news-
leaving the region vulnerable to large capital outflows. makers and movers.
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2. global fx summit 2013
HSBC Global Head of FX and Precious Metals Derivatives, Vincent Craignou, speaks during the Reuters Global FX Summit in London April 22, 2013.
REUTERS/Benjamin Beavan
FX heads warn of EU trading tax risks
By Anirban Nag, bond trades and 0.01 percent on derivatives.
Pratima Desai and Nia Williams Its advocates say the tax will ensure banks, Follow Reuters Summits
on Twitter:
LONDON, April 23, 2013 which received taxpayers’ money during the @reuters_summits
financial crisis, contribute to the public coffers.
T
he European Union’s proposed fi- Bankers say its impact will be felt far be-
nancial transaction tax (FTT) risks yond the financial sector and some are cam- nearly $2 trillion.
limiting companies’ and pension paigning to have it changed. For foreign exchange swaps, the daily
funds’ access to liquidity and funding, a se- Others describe it as simply unwieldy, turnover was $920 billion, more than the
nior HSBC official said on Monday. particularly when taken in conjunction with $678 billion of spot transactions.
Speaking at the Reuters FX Summit, the U.S. regulatory overhaul of financial Craignou said that under various regula-
Vincent Craignou, global head of FX and markets known as Dodd-Frank. tory changes proposed worldwide since the
precious metals derivatives, said a one basis “If everything that was talked about in global financial crisis, such as the Dodd-
point tax on short-dated currency swaps the European Union parliament and else- Frank reforms in the United States, foreign
would be “enormous” and drive up the spread where were to come to fruition, we would exchange swaps and forwards have so far
between the bid and offer by 15-20 times. be overwhelmed,” said Bob de Groot, global been exempt.
“If you would want to pass the FTT to head of FX spot trading at BNP Paribas. “As an industry we will have to be in-
the end-user, it would have unintended con- “A financial transaction tax would volved in the consultation with the Euro-
sequences in the ability of the players to ac- be difficult for the whole industry and pean Commission and parliament. We have
cess liquidity or funds,” Craignou said. have repercussions.” to make sure the foreign exchange market
Although spot FX trades would not be Many companies use currency forwards to doesn’t get affected by the tax,” he said.
subject to the proposed tax, derivatives such hedge against currency and interest rate risks. Luxembourg said on Monday it would
as swaps and forwards would. Pension funds widely use currency swaps to support Britain’s legal challenge to the FTT.
The tax will be imposed by 11 of the EU’s protect their foreign currency positions. London is the world’s biggest centre for for-
27 member countries. Belgium, Germany, In the latest Bank of England semi- eign exchange and bonds.
Estonia, Greece, Spain, France, Italy, Aus- annual survey, outright forwards accounted
tria, Portugal, Slovenia and Slovakia have in October 2012 for a daily average volume Additional reporting by Anooja Debnath,
said they will levy 0.1 percent on stock and of $151 billion in London out of a total of editing by Nigel Stephenson
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3. global fx summit 2013
Expect yen volatility with more weakness ahead
NEW YORK, April 22, 2013
T
he yen has mostly lost its luster
given recent changes in Japanese
monetary policy, and even volatil-
ity in the near term will not detract from
the currency continuing to lose ground in
months ahead, market analysts and money
managers said on Monday.
Speaking at the Reuters FX Summit
in New York, several market participants
ranged from neutral at best to downright
bearish on the Japanese unit.
“Japan’s yen is no longer the safe-haven it
used to be,” said Axel Merk, president of Palo A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012.
Alto, California-based Merk Investments, REUTERS/Kim Kyung-Hoon
who oversees about $750 million in assets.
Earlier this month the Bank of Japan
announced an aggressive plan to stimulate global economy could even give the yen even those in emerging markets, have had
its economy, saying it will buy $1.4 trillion some strength, said John Taylor, chairman no serious opposition to Japan’s new plans
in bonds in less than two years. Bond buy- of FX Concepts in New York, one of the to stimulate its economy by central bank
ing, called quantitative easing (QE), is con- largest currency hedge funds. bond-buying.
sidered to be negative for a currency since it “We’re forecasting that the yen is going While the exasperation of finance
is tantamount to printing money and dilut- to be strong between now and July,” Taylor ministers and central bankers attending
ing its value. said. “I think in the next quarter, we’ll trade last week’s Group of 20 and International
Merk has been very short the yen since between 92 and 102, and I’d be more in- Monetary Fund meetings was palpable,
November. To be short a currency is a bet clined to think 92.” economic growth is seen as key to ending
on its decline while the opposite holds true The dollar rose to within striking dis- the economic and financial crisis that has
for holding a long position. tance of 100 yen on Monday, a level last plagued the global economy since 2008.
Vassilis Dagioglu, head of asset alloca- breached in 2009, hurt by the BoJ plans to Alessio De Longis, a portfolio manager
tion portfolio management at Mellon Cap- pump $1.4 trillion into its economy. It has at Oppenheimer Funds believes the weak-
ital in San Francisco, which oversees $300 risen around 14.3 percent this year. ening of the exchange rate through mon-
billion in assets, said he’s been neutral on But Taylor said few Japanese-based in- etary policy easing will be successful.
the yen since the fourth quarter of last year. vestors have been selling the yen in favor Some 18 months ahead, De Longis
“But at this point, we’re not willing to of higher-yielding assets abroad, likely be- sees the dollar trading in the 105 to 115
speculate about the particular level where the cause they are worried about taking on risk trading range.
yen may reach. At this point, it’s really very at a time when global growth looks fragile. “That is more like a fundamental pro-
much politically decided,” Dagioglu said. “The Japanese, from what I’ve seen, just jection, it’s not a trading forecast, rather a
He added the yen still exhibits a nega- don’t buy this act yet,” he said. trading-range forecast,” said De Longis.
tive correlation with risk, strengthening That will leave the yen weakening again
when there are shocks in financial markets, in the second half, with the Japanese cur- Reporting By Nick Olivari, Wanfeng Zhou,
as Japanese investors repatriate money back rency falling to 105 to 110 per dollar by Julie Haviv, Gertrude Chavez-Dreyfuss,
home. That may also limit the downside year end. Steven C. Johnson and Daniel Bases;
move of the currency. The desire for a stronger path of growth Editing by Chris Reese
And in the near term, worries about the helps explain why G20 and other officials,
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4. global fx summit 2013
Yuan options business picking up: FX heads
By Anirban Nag, Nia Williams and share, according to a survey released in March billion a day, it remains small in the $5 tril-
Jessica Mortimer by research firm Greenwich Associates. lion-a-day currency market.
LONDON, April 23, 2013 Nomura, a leading Japanese investment But volumes have doubled since 2010
bank, has also witnessed a pick-up in client and the global head of FX trading at HSBC
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he options business in the Chinese interest in Chinese yuan options market. expects that trend to continue in 2013.
offshore yuan market is picking up “I think the vol (volatility) space in “The volume in FX spot, forwards and
significantly as China lets its curren- offshore yuan will be very active. Inves- options has increased dramatically since
cy trade more freely, global heads of foreign tors outside Asia have been keen to buy the market was launched in 2010,” said
exchange said on Monday. optionality in future strength in the yuan,” Vincent Craignou, global head of FX and
Speaking at the Reuters FX summit, Rajpal said. precious metals derivatives at HSBC, add-
Nomura’s global head of foreign exchange, Bob De Groot, global head of FX spot ing more and more companies were settling
Jai Rajpal, and his counterpart at Deutsche trading at BNP Paribas, said there has been their trade transactions in the yuan.
Bank, Kevin Rodgers, identified the Chinese a lot of interest in yuan options against a HSBC, which is Europe’s largest bank
yuan options market as an area that would range of currencies from the Group of 10 and does a big part of its business in Asia,
see sustained growth in coming years. developed countries. says it expects 30 percent of China’s total
“Our Chinese options business ... (has) trade flow to be settled in yuan within the
gone from being an insignificant part of our VOLUMES DOUBLE next three years. That would make it one of
FX derivatives franchise seven or eight years Growing demand for option products in the top three currencies used in global trade.
ago to a significant part,” said Rodgers. the offshore Chinese yuan market is a di- According to global transaction services
Deutsche is the market leader in global rect result of the currency’s rising share in organization SWIFT, the yuan is ranked
foreign exchange, with a 10.7 percent market the global FX market. But at around $10 the 13th most widely used world payment
currency after surpassing the Russian rou-
ble in January with an all-time high market
share of 0.63 percent.
The rise in the yuan’s share is a result of
China’s effort to internationalize the cur-
rency. China has been developing an off-
shore market for it, as a precursor to allow-
ing global firms, banks and asset managers
access to its domestic market.
It has also steadily eased capital controls
for foreign investors seeking to ramp up
exposure in its domestic securities market.
That apart, the central bank, the People’s
Bank of China has been widening the trad-
ing band in which the yuan is allowed to
move in the domestic onshore market.
“Internationalization of the renmenbi
has been amazingly successful,” said Craig-
nou, adding he expected the yuan to be
fully convertible in five years.
Editing by Nigel Stephenson
Nomura Global Head of Foreign Exchange, Jai Rajpal, speaks during the Reuters Global FX Summit
in London April 22, 2013. REUTERS/Benjamin Beavan
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5. global fx summit 2013
Slower Chinese growth poses uncertainty-fund managers
By Wanfeng Zhou The recent decline in prices of oil and na was growing at 12-14 percent, we still
NEW YORK, April 23, 2013 copper -- commodities highly sensitive to found ways to be negative about it.”
economic growth -- is another indication of The Bank of Japan’s aggressive mon-
F
ears of a Chinese economic hard- worries about the global economy, Taylor said. etary easing has sparked concerns about
landing have eased but recent dis- Copper hit an 18-month low and Brent the impact the yen’s sharp fall will have on
appointing data underscored risks crude oil fell below $100 a barrel on Tuesday. exporters from South Korea to China and
of slower-than-expected growth in the around Asia, a scenario which could trigger
world’s second largest economy, fund man- YEN BENEFITS competitive devaluations across the region.
agers said at the Reuters FX Summit. Uncertainty about the global economy could The G20 major and developing coun-
A slowdown in China, combined with benefit the yen. Mellon Capital’s Dagioglu tries avoided any direct criticism of Japan’s
a deteriorating outlook for the euro zone said the yen still exhibits a negative correla- policies over the weekend and appeared to
economy and government belt-tightening tion with risk, strengthening when there are accept the need to reflate the world’s third
in the United States could prompt inves- shocks in financial markets as Japanese in- largest economy as part of efforts to invigo-
tors to flee riskier investments and seek vestors repatriate money back home. rate a shaky global economic recovery. But
safety in the dollar and yen, they said. “We’re forecasting that the yen is going the group added it would be “mindful” of
Growth in China’s vast factory sector to be strong between now and July,” FX possible side effects from extended periods
dipped in April as new export orders shrank, Concepts’ Taylor said. “I think in the next of monetary stimulus.
according to a survey released on Tuesday. quarter, we’ll trade between 92 and 102, The dollar has risen 15 percent against
It followed reports showing growth unex- and I’d be more inclined to think 92.” Tay- the yen so far this year, while the euro has
pectedly slowed in the first quarter to 7.7 lor expects the global economy to slow in risen 13 percent.
percent and power generation grew at the the second quarter. De Longis said while the weakening of
weakest pace in six months in March. The dollar rose to within striking dis- the yen is creating challenges for some econ-
“Although we believe that probably we’ll tance of 100 yen on Monday, a level last omies like Korea and Taiwan, others such as
be looking at 7-8 percent growth, there’s a breached in 2009. Thailand and Malaysia, which provide inter-
risk that China may be undershooting that Despite a slowdown, fund managers mediate goods to Japan, are well positioned
level,” Vassilis Dagioglu, head of asset alloca- said China’s growth rate at 7.7 percent is to benefit from increasing demand for Japa-
tion portfolio management at Mellon Capi- still significantly above what other major nese exports, as Japan will need more inter-
tal, said at Monday’s Reuters FX Summit. economies are seeing. China is adjusting its mediate goods to build from.
The World Bank cut its gross domestic economy to boost domestic consumption “There’s clearly a major impact in Asia,
product (GDP) growth projection for China and the world economy is also less reliant but it doesn’t have to be a unilaterally nega-
by 0.1 percentage point to 8.3 percent for on Chinese growth than in the past. tive one,” he said. “Because at the end of the
2013. China, on the other hand, has set a 7.5 “Now we’re seeing a lower level of global day, if we manage to reinvigorate the third
percent GDP growth target for this year. growth but a rebalancing of global growth,” largest economy in the world, somebody
John Taylor, chairman of FX Concepts, said Alessio De Longis, senior portfolio will clearly benefit from it.”
with assets under management of about $2 manager at Oppenheimer Funds in New
billion, also said the low level of electricity York. Oppenheimer has $208 billion in as- Additional reporting by Steven C. Johnson;
consumption in China is further indication sets under management. Editing by Chris Reese
the Chinese economy is slowing. “Remember a few years ago when Chi-
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6. global fx summit 2013
The realities of a currency war
By Gertrude Chavez-Dreyfuss the case of the BoE, investors expect the strengthening in the near term due to ex-
NEW YORK, April 23, 2013 bank will introduce more stimulus measures pectations of a global slowdown in the sec-
to resuscitate its flagging economy. ond quarter.
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he world’s biggest developed na- “We don’t see the second quarter as a
tions, particularly Japan and the SHORTING THE YEN STILL THE very good quarter for global growth and the
United States, have engaged in vari- TRADE “DU JOUR” normal relationship of that is that money
ous efforts to lower interest rates to stimu- The most straightforward way to play the comes back to the yen,” said Taylor.
late consumer demand that some investors currency war is still to sell the yen. That’s “We’re forecasting the yen to be strong
have taken to calling a “currency war.” still the most popular trade among asset between 92-100 to the dollar on the top-
Even though central banks are not directly managers interviewed at the summit. side by July.”
intervening in forex markets, what they’re do- Axel Merk, president and chief invest- The dollar rose to within striking dis-
ing amounts to a de facto forex war because ment officer at Merk Investments, said he tance of 100 yen on Monday, a level last
the effect is the same - weaker currencies. has been short the yen since November last breached in 2009.
“Yes, we are in a currency war. The G20 year primarily against the dollar. He has been
now basically calls as it is - every country is selling short-term yen forward contracts, JUST SHORT-TERM GAIN?
free to run the monetary policy necessary representing a significant proportion of his But in this day of free-floating exchange
for its own economic growth,” said Alessio portfolio. Merk believes as the BoJ continues rates, deliberate currency debasements
De Longis, senior currency portfolio man- to ease, this may be the beginning of the end would reap just short-term benefits, said
ager, at Oppenheimer Funds in New York. for the yen as a safe-haven currency. Ken Dickson, director of currencies at
He spoke at Monday’s Reuters Global FX “The yen is no longer the safe haven that Standard Life Investments in an earlier in-
Summit in New York. it used to be because of its deteriorating terview. Standard manages $272.6 billion
Oppenheimer has $208 billion in assets current account balance. And with a debt in assets.
under management. to GDP ratio of 200 percent, the yen has Governments like weaker currencies
The Federal Reserve has been in quan- no chance of surviving,” said Merk. because they improve domestic demand
titative easing mode since late 2008, but it “When you add to that Japan’s extremely by making imports more expensive and ex-
was the Bank of Japan’s easing earlier this aggressive fiscal and monetary approach, then ports more competitive, which ultimately
month that really shook the market. you know that the yen is in deep trouble.” results in economic growth.
The BoJ rocked financial markets early, Oppenheimer’s De Longis said the However, Dickson said there is no real
unleashing the world’s largest monetary short yen position is also the fund’s “high- evidence of this, at least in the current en-
stimulus in committing to inject $1.4 tril- est conviction” trade. He added that the BoJ vironment.
lion into the economy in less than two would be successful in weakening the yen, In addition, when a country subsidizes
years. That sent the yen reeling on April 4 but he wasn’t sure whether the central bank one’s exports with an artificially weak cur-
after the BoJ announced the move, falling would be able to boost inflation to its two rency, businesses lack an incentive to inno-
more than three percent in a single day. percent target. vate. Japan is the best example.
The yen has tumbled more than 14 per- The BoJ has put itself out on a limb by de- Merk of Merk Investments, thinks Ja-
cent so far this year against the dollar. claring the two percent inflation goal is achiev- pan’s problem is not a strong currency, but
The Group of 20 developed and emerg- able within two years, and is clearly ready to do a lack of innovation. By weakening the yen,
ing economies at a meeting over the week- whatever it takes to ensure that happens. Japanese companies are given a “free ride,”
end effectively affirmed its acceptance of Still many believe it’s a crowded trade. taking the motivation away to create new
the BoJ’s aggressive stimulus policies. In the case of FX Concepts, a currency products and undertake reforms.
The Bank of England and the European hedge fund with about $2 billion in assets
Central Bank, on the other hand, decided to under management, it has exited its short Reporting by Gertrude Chavez-Dreyfuss;
hold off on further stimulus, but were down- yen/long dollar position. In fact, the fund’s Editing by Chris Reese
beat on their economies, which should keep chairman and chief investment officer John
their currencies on the defensive as well. In Taylor said the firm is betting on the yen
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7. global fx summit 2013
Thai central bank: no “draconian” measures to stop baht rise
By Orathai Sriring baht stay at low levels,” he added.
BANGKOK, April 22, 2013 The baht traded around 28.67 per dol-
To read all stories
lar on Monday and has risen 2 percent this Global FX Summit:
T
hailand’s central bank is worried about month. So far this year it has gained 6.8 http://www.reuters.com/summit/FX13
the baht’s rapid rise but is unlikely to percent against the dollar because of sus-
impose “draconian” measures to rein tained inflows, making it emerging Asia’s on the economy and they should fix the
it in, an assistant governor said on Monday, strongest currency. specific place where there is a problem.”
adding that Thailand should no longer be a Paiboon said capital inflows into Thai-
low-wage, cheap-currency economy. INTEREST RATES SUPPORTIVE land were normal, reflecting the country’s
Paiboon Kittisrikangwan also told Re- Paiboon also said the current policy inter- strong economic fundamentals.
uters that the baht has started to move est rate supported economic growth, which “It’s not a surprise that inflows are com-
close to “a zone beyond the fundamentals” the central bank forecast to be 5.1 percent ing. Compared with others around us that
and the central bank was ready to do some- this year. He added that lowering the rate have problems, we are the least ugly,” he said.
thing if it went “way beyond” that. while the economy was strong could have a He added: “But it’s fortunate that the
“Although we are worried about the negative impact. Thai economy is still strong and can with-
baht, which sometimes maybe overshoots “Our interest rate is not high. With eco- stand” the baht’s strength, while exporters
or rises beyond fundamentals, we have to nomic growth of 5 percent, the current in- were also able to adjust to a certain extent
consider how much we can do,” he told Re- terest rate is already accommodative. If we to currency strength.
uters in an interview. cut it just to slow capital inflows, there will Paiboon said the strong baht could be a
The central bank would try to keep sta- be negative consequences. It may not be good opportunity for businesses to bring in
bility and order in the market to ensure worth it,” he said. machinery and improve productivity.
the real economy would not be affected, he “We stand out in terms of the economy, He said the economy probably grew 7-8
said. But any measures it takes should be not interest rates.” percent in the first quarter from a year ear-
proportionate to the problem and not pre- After a surprise cut in October, the Bank lier but quarter-on-quarter growth could
vent the private sector from adjusting itself of Thailand’s policy committee has left the be small, or even flat, after robust growth in
and enhancing efficiency. benchmark rate at 2.75 percent. At the last the previous quarter.
“It should not be draconian measures for meeting on April 3, it expressed concern Southeast Asia’s second-largest econo-
short-term comfort at the expense of nec- about credit growth and potential asset my grew a much higher-than-expected 3.6
essary long-term adjustments ... The time price bubbles. percent in October-December 2012 from
when we could rely on cheap currency and It has resisted pressure from Finance the previous three months thanks to strong
wages is over.” Minister Kittirat Na Ranong, who has said domestic demand. It surged 18.9 percent
Paiboon said there was a high chance of the policy rate is high and should be cut to from the same period in 2011, when floods
a correction if the currency rose out of line deter “hot money” inflows. caused massive damage.
with economic fundamentals. Most economists expect no change in the In 2012, the economy expanded 6.4
Chester Liaw, an economist at Forecast policy rate all year but some think it could go percent, after growth of just 0.1 percent
in Singapore, said: “They probably do not higher due to inflation risks later in the year. in 2011 due to severe flooding in the final
want to stand in the way of real money The next policy meeting is on May 29. months of that year.
inflows, particularly as the baht/yen rise is Kampon Adiraksombat, an economist
driving most of the dollar/baht fall.” at Tisco Securities, said he agreed that the Additional reporting by Satawasin
“However, should the former inflows central bank should not use interest rates to Staporncharnchai; Editing by Alan Raybould
start to dry up, we would look for more handle the inflows. & Kim Coghill
concrete intervention should the dollar/ “Interest rates will have a wide impact
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8. global fx summit 2013
Deutsche sees FX arms race hotting up
By Nia Williams trading was changing the type of people be- “whatever it takes” to save the euro.
LONDON, April 23, 2013 ing recruited to work in the dealing room. “Cyprus made us uncomfortable. It
From “dozens and dozens” of spot trad- brought into operation some of the con-
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he technological “arms race” in the ers when he first started at the bank 14 years tingency planning we had thought about
foreign exchange market will es- ago, Rodgers said the headcount in foreign earlier. It was a small scale version of what
calate, Deutsche Bank’s (DBKGn. exchange at Deutsche was lower than a few might happen if a bigger country was in
DE) global head of foreign exchange said. years ago, though not dramatically so. similar difficulties,” Rodgers said.
Speaking at the Reuters FX summit, Instead, there were many more people That planning included how to monitor
Kevin Rodgers said more banks will be working on the electronic side, including parties affected, how to stop them trading,
spending more money on technology this “literally Russian rocket scientists.” how to work internally with legal and com-
year as electronic trading platforms begin “The skill types are moving away from pliance teams.
to be seen as essential tools of the business. the classic FX skills of making markets Rodgers said in his view the conse-
“If you are an FX bank and you do not and becoming more technology-orientat- quences of a euro zone break up would be
have a well thought through electronic of- ed. That balance drifts year after year and far worse than the fallout from the collapse
fering - you are not really an FX bank,” he leads to a very different kind of FX staff,” of Lehman Brothers in 2008.
said. “It’s becoming a technological and he added. “Everything we did internally at
client service arms race. This year will be a Deutsche Bank looking at the consequenc-
continuation of that process.” CYPRUS DISCOMFORT es of a break-up suggested it would just be
Deutsche Bank has a 15 percent share of Rodgers said although Deutsche Bank had horrific,” he said.
the $5 trillion-a-day currency market and mostly put in storage its contingency plans “We have to have contingency plans.
was ranked top bank for foreign exchange for a euro zone break-up, the financial crisis Right now we have put them in a folder
transactions for the eighth year in a row in in Cyprus and subsequent bailout had re- and hope we do not have to break them out
the 2012 Euromoney poll. vived concerns about such an event. any time soon.”
Its single-dealer “Autobahn” trading The bank started preparatory work on (For other news from Reuters Global
platform has helped cement its dominance, planning how to deal with a country leav- FX Summit, click on www.reuters.com/
with up to 90 percent of Deutsche Bank ing the euro zone in early 2012, but stopped summit/FX13)
spot flows fully automated. after the “Drgahi put” in July when the Eu-
Rodgers said the emphasis on electronic ropean Central Bank chief promised to do Editing by Nigel Stephenson
Deutsche Bank Global
Head of Foreign Exchange
Kevin Rodgers speaks
during the Reuters Global
FX Summit in London
April 22, 2013. REUTERS/
Benjamin Beavan
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9. global fx summit 2013
Yen unlikely to slide to 110 vs dollar: Fukoku’s Sakurai
By Sophie Knight Kuroda’s radical rehaul of monetary
TOKYO, April 22, 2013 policy created a ‘dilemma’ for institutional
investors, Sakurai said.
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he yen is unlikely to slide as far as The BOJ appeared to suggest that inves-
110 against the dollar as the outlook tors should switch their money to foreign
for the global economy remains un- bonds from Japanese debt, but that would
certain and as exporters suffer from a weaker Yuuki Sakurai, Chief Executive Officer and leave them vulnerable to currency fluctua-
yen due to higher overseas manufacturing President of Fukoku Capital Management, poses tions, Sakurai said.
costs, a major Japanese fund manager said. for a photo at Reuters Global FX Summit in Smaller local institutions and rural banks
Yuuki Sakurai, CEO and President of Tokyo April 19, 2013. REUTERS/Yuya Shin will also be stung by the illiquidity in the
Fukoku Capital Management in Tokyo, JGB market caused by the BOJ’s actions,
which handles $16 billion in assets, said Sakurai said, although investors willing to
the yen’s status as a safe haven currency ing to send the message that we are going go abroad will likely find comfort in low-
could even cause it to reverse its 20 percent to revive again, that he could change things, risk government bonds from the United
tumble against the dollar if signs of stall- that he can change the direction of the Jap- States, Canada and Germany.
ing growth in China, a patchy U.S. recovery anese economy.” Sakurai also takes issue with the BOJ’s
and euro zone turmoil persist. Sakurai says that the Nikkei stock index determination to achieve two percent infla-
While Sakurai said he expects the Japa- .N225 will likely hold around its current tion within two years, a goal that has be-
nese currency to stick to around 97 to 98 level until July on expectations that Abe come a constant refrain for both Kuroda
yen against the dollar for now, he does not will achieve a landmark victory in upper and Abe.
believe there’s an “ideal” exchange rate that house elections expected that month. The “The target is to have a good economic
would be broadly advantageous for Japa- index climbed 1.9 percent to 13,574.71 to recovery, not to have two percent inflation
nese companies, which he says are more a near five-year high on Monday morning. in two years...Look at the UK: you have
worried about volatility than the yen’s But while investors into Japanese equi- two percent inflation and the economy is
relative strength or weakness. The yen was ties can continue to celebrate the bench- bad,” he said.
quoted at 99.84 to the dollar, within strik- mark’s gain of more than 50 percent since However, Sakurai believes the Japanese
ing distance of 100, on Monday morning. last November, Sakurai said holders of economy could improve merely on expecta-
“They like a stable currency so that they Japanese government bonds were less than tions of Abenomics, if skyrocketing Japa-
can make their strategies,” he said in an in- pleased with the monetary arm of Aben- nese stocks prompt companies to increase
terview for the Reuters FX Summit. omics enacted by the Bank of Japan. wages and lead consumers to part with
“Personally, I do doubt that the weak yen The BOJ shocked financial markets on more of their cash.
will become a strong (tail)wind for the Jap- April 4, when new Governor Haruhiko “There is a separation between the actual
anese economy, because so many Japanese Kuroda announced the plan to inject $1.4 economy and the market at this moment,”
manufacturers have sent their production trillion into the economy in less than two he says.
overseas to cope with the strong yen.” years, nearly doubling the monetary base to “Whether the real economy will catch up
One positive effect of a softer yen could $2.9 trillion in that time. with the market, or the market is going to
be psychological, Sakurai suggests, if investors “The Kuroda shock...was like shooting a adjust to the real economy, we are not quite
and the public attribute it to “Abenomics”, an sparrow with a cannon,” Sakurai said, add- sure at this moment. If this continues, we
aggressive mix of monetary and fiscal policies ing that smaller and more frequent inter- may see a kind of mini-bubble in equities
touted by Prime Minister Shinzo Abe. ventions might be more effective. and a real estate bubble. If that continues, it’s
“I think (Abe) is trying to send a mes- “What puzzled me about (Kuroda’s) a kind of disaster for the Japanese market.”
sage to the Japanese,” Sakurai said. comment was that he said he’d do nothing
“Although he knows that the weak yen for the time being. That means he’s showed Additional reporting by Hideyuki Sano, Lisa
is not going to connect directly to the every card he has. That’s not a very good Twaronite and Dominic Lau in TOKYO; Editing
strength of the Japanese economy, he is go- policy from the central bank.” by Jacqueline Wong
9
10. global fx summit 2013
Axel Merk, President and
Chief Investment Officer
of Merk Investments
speak at the Reuters
Global FX Summit in
New York, April 22, 2013.
REUTERS/Mike Segar
Euro “cursed” to go higher: Merk Investments CIO
By Julie Haviv away from la-la land where they think the do is give the economy a good jolt and ev-
Fed will have a clean exit and then realize erything will be fine,” he said.
W
ith the European Central Bank they can’t,” he said. The Federal Reserve has its own asset
refraining from conducting a The dollar last traded at 99.18 yen, down purchase program, under which it is buying
massive bond buying program 0.3 percent on the day. It has risen around $85 billion a month of bonds.
as other central banks have done, the euro is 14.3 percent this year. “One of the reasons QE hasn’t caused
“cursed” to go higher, Axel Merk, the presi- “Japan’s yen is no longer the safe-haven more damage is because it hasn’t worked.
dent and CIO of Merk Investments said at it used to be,” he added. But let it work. Then you are going to have
a Reuters FX Summit on Monday. Earlier this month the Bank of Japan a major problem,” he said.
“We think $1.40 is easily possible this announced an aggressive monetary stimu- Merk has been very short the yen since
year and over the next two years, over $1.50 lus plan to stimulate its economy, with November and has held a considerable long
is possible. And that’s mostly based on the plans to buy $1.4 trillion in bonds in less in the euro since August.
weakness of all the other currencies,” said than two years. To be short a currency is a bet on its
Merk, who is based in Palo Alto, California. Bond buying, called quantitative easing decline while the opposite holds true for
The euro last traded at $1.3034, down (QE), is considered to be negative for a holding a long position.
0.1 percent on the day. It has fallen about currency since it is tantamount to printing “The ECB is not going to pick a fight
1.2 percent this year. money and diluting its value. with Japan, which is on a mission to destroy
“The euro is cursed to become very very Merk, who oversees about $750 million their currency,” he said.
strong in this sort of environment. Over the in assets, said the policymakers in Japan do
next one to three years, I think the euro has not understand the dynamics have changed. Reporting By Julie Haviv; Editing by Chris Reese
to be substantially stronger as people go “They think the only thing they have to
10
11. global fx summit 2013
Yen may hit 105 vs dollar: Rhicon Currency Management
By Masayuki Kitano Analysts say the BOJ’s sweeping stimu-
SINGAPORE, April 22, 2013 lus is likely to eventually prompt Japanese
investors such as life insurers to step up in-
T
he yen looks set to fall further and vestment in higher-yielding assets overseas.
could hit 105 versus the dollar, al- Japanese capital flows data, however,
though it is unlikely to drop as contains no sign so far that the BOJ’s dras-
smoothly as it has done so far, a portfolio tic stimulus has triggered any Japanese
manager for FX trading fund Rhicon Cur- investor rush into overseas assets. Instead,
rency Management said. they have repatriated money back home in
“A move to say, sort of 105 or there- the first two weeks of April.
abouts, is very much on the cards,” said
Christopher Brandon, managing director PRESSURE ON THE YEN
for Rhicon Currency Management, a Sin- “If you look at how the investment deci-
gapore-based fund with about $350 million sions are made with lifers and so on, it
in assets under management. moves a lot slower,” Brandon said, adding
“However, I think it would probably that Rhicon has tried going long the yen in
entail a broader dollar appreciation across the past few weeks.
the board to see dollar/yen go higher than “I think that while we will see continued
that,” Brandon told Reuters in an interview pressure on the yen, I don’t think it’s going A man is reflected on an electronic board
for the Reuters FX Summit, when asked to be as straight line as it has been,” said displaying exchange rates outside a brokerage in
about the dollar’s outlook versus the yen Brandon, a short-term trader who holds Tokyo October 31, 2011. REUTERS/Issei Kato
this year. positions for up to a week.
The dollar scaled a four-year high of Rhicon, which also has an intraday trad-
99.95 yen this month, after the Bank of er and another trader whose trades last for some of those,” Brandon said.
Japan unveiled drastic monetary stimulus as long as a month, may see opportunities “And it’s frustrating. You’re on the sidelines
and pledged to pump $1.4 trillion into the in different directions depending on the waiting for patterns to develop or signals to
economy in less than two years. time frame, he added. come and the market runs away before you’ve
That marked a dollar rise of roughly 25 Brandon said Rhicon put on bearish been able to get involved,” he said.
percent versus the yen compared with mid- bets versus the yen starting around Octo- Brandon said Rhicon achieved a return
November, when yen bears began ramping ber to November of last year but exited all of roughly 7 percent in 2012, owing to
up bets for the yen to weaken, mainly on of them by mid-January, after achieving its successful trades in the second half. Those
expectations for aggressive monetary easing profit targets for the trades and also based included bullish bets on the euro against
by the BOJ. on technical signals. currencies such as the Australian dollar and
A trend toward a weaker yen now seems “From October-November onwards, we the New Zealand dollar, in addition to its
firmly entrenched, and the chances of the were quite early into the yen weakening bets that the yen would weaken.
dollar dropping back to levels below 83 yen trade,” he said. More recently, Brandon said he has tried
seen late last year appears “extremely un- While a focus on technical analysis al- putting on bearish bets against commodity
likely”, Brandon said. lows Rhicon to spot trading opportunities currencies.
Still the yen’s declines from here on are early on, it can also lead to frustration when “I’ve actually been trying to express Aus-
unlikely to occur in as straight forward a the market moves on policy decisions, Bran- sie and kiwi shorts, but actually against the
manner as has been the case until now, said don said. One such example was the yen’s euro, and against sterling. But with mixed
Brandon, a co-founder of Rhicon. tumble after the BOJ unleashed its aggres- success,” he said.
“The market is getting slightly ahead of sive monetary easing on April 4, he added.
itself in terms of anticipating the flows out “Because it’s not breaking or triggered Additional reporting by Vidya Ranganathan;
of Japan,” Brandon said. by any technical points, we tend to miss Editing by Jacqueline Wong
11
