(Bloomberg) -- Mercer LLC is sticking with its poor-performing overweight yen exposure in multi-asset funds in anticipation of multiple interest-rate increase by the Bank of Japan over the next couple of years.
The investment consultant, which also manages $492 billion for external clients, expects the BOJ to increase its benchmark rate to 1.5% or higher, according to Cameron Systermans, Mercer’s head of multi-asset for Asia. Systermans is confident of the first hike coming this year and considers this week’s policy meeting as live.
“We are long the Japanese yen against the US dollar, the euro and the New Zealand dollar,” he said in an interview. “It’s a negative carry position, so you’re paying away a lot of carry, but we are very confident in the view and willing to take that negative carry.”
The long yen exposure has been in place since October last year across multiple multi-asset funds within Mercer’s outsourced chief investment officer business, indicating “our single globally consistent house view” on the BOJ, Systermans said. The projection for the policy rate reaching 1.5% in coming years, which reflects the expectation that inflation will become entrenched, compares with the 1% median forecast for the terminal rate from a Bloomberg survey.
“We think that the Bank of Japan can achieve its 2% inflation target on a sustainable basis going forward,” he said. “Getting that virtuous cycle going between wage growth and service price growth — which makes hitting that inflation target sustainable — that is in place.”
The BOJ will deliver its next monetary policy decision Wednesday. In March it increased its policy rate for the first time in 17 years to a range of zero to 0.1% from a -0.1% short-term interest rate.
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