Citigroup’s clients in Japan bet on US dollar, Aussie as Ueda cools BOJ bets

BLOOMBERG 

Japanese investors are snapping up foreign currencies, local stocks and US Treasuries after the country’s new central bank chief damped speculation he will start normalising policy.
Among their investments, Citigroup clients are buying US and Australian dollars to profit from their interest-rate premiums over the yen, said Keita Matsumoto, head of financial institutions sales and solutions at Citigroup Global Markets Japan Inc. Their activity show clients have shifted bets on changes to the Bank of Japan’s (BOJ) ultra-easy policy to as late as the second half of next year, he said.
“The vast majority of clients are determined to wait and see” before investing in Japanese government bonds (JGBs), Matsumoto said in an interview in Tokyo. “We are now seeing more interest in foreign exchange, Japanese equity, or the US Treasury market. Probably the most interesting is the FX market.”
The change in client strategy shows how the dovish tone taken by new BOJ Governor Kazuo Ueda has filtered through markets. The former academic said it’s “appropriate” to carry on with his predecessor’s policies, suggesting the BOJ will retain its position as the last major central bank with negative interest rates for some time yet.
While investor interest in JGBs may have cooled for now, Citigroup has been preparing for a longer-term pick-up since last year, Matsumoto said.
These moves have paid off as the bank has gained market share with money managers starting to shift into JGBs from overseas bonds over the same period.
Matsumoto’s yen rates sales team — which sells JGBs and related derivatives — has been adding staff due to its conviction that policy changes will come eventually, he said. “Let’s say, on a five-year, 10-year horizon, the BOJ must do normalisation,” Matsumoto said.
There’s potential for the team to hire a few junior employees for its JGB sales team, he said. Citigroup has been working to reinforce its yen-rates-trading business in Tokyo, transferring a few staff from its foreign bond section last year, he said.
Citi is also beefing up its balance sheet to support the expansion of this business, he said.
“Our strategy is not looking for external senior hires, but trying to develop more junior internal organic talent for the JGB market,” Matsumoto said. “The JGB talent pool has been limited” after years of market stagnation so financial firms need to act quickly to develop young professionals, he said.
“We are going to expand further from here,” he said. “We’re very committed in this space globally.”