Naka Matsuzawa debuted in first place last year, when this sector was introduced, and the 46-year-old claims the same spot this year. “His research is solid, and he is not afraid to take a bold stand,” declares one buy-side advocate. Case in point: The Nomura Securities Co. strategist is one of the few to argue that the yen won’t depreciate much further this year, although he believes eventually it could fall another 20 percent from its late March level of ¥95 to the dollar. The market is waiting for one of two signals, he says: the central bank to begin buying equity exchange-traded funds or foreign assets in sufficient magnitude, or the U.S. Federal Reserve Board to make a move toward exiting its quantitative-easing initiatives. “If the Bank of Japan is to drive up inflation expectations through higher stock prices and a weaker yen, it has few options other than major purchases of risk assets,” Matsuzawa explains. “Until the bank becomes aware of this — or such measures are deemed no longer necessary owing to a global recovery — it will likely continue to focus on aggressive Japanese government bond purchases as its main policy tool.” His advice? “Trade on a bull flattening in the superlong zone.” The spread between ten- and 20-year Japanese bonds remained fairly wide in March, at about 90 basis points, “but it could approach the past average and even undercut it briefly,” the researcher says. “The median since fiscal 2009 [which began in April of that year] is 79 basis points, but it narrowed to 64 when banks went significantly long superlong JGBs for short-term gains in the summer of 2010.” — Thomas W. Johnson |
Economics & Strategy – Fixed-Income Strategy: First 2013
