SYDNEY, March 28 (Reuters) – The Australian and New Zealand dollars extended their meteoric rise against the yen on Monday as the Bank of Japan moved to keep domestic bond yields near zero even as Antipodean yields hit multi-year highs.
The BOJ’s offer to buy as many bonds as needed to keep yields low bucked the tightening trend in most other developed countries.
The yield chasm saw funds exit the yen in search of higher yields, taking the Aussie to its highest level since mid-2015 at 92.52 yen. The Aussie was now up 10.5% for the month, its best performance in a decade.
Cash flow combined with high commodity prices also pushed the Aussie up to $0.7519, a 3.5% gain on the month so far. The next stop is last October’s high at $0.7555.
The kiwi dollar was not to be outdone, rising 9.7% over the month to 85.44 yen. It hit $0.6950 on the US dollar for a 2.6% gain.
Alan Ruskin, macro strategist at Deutsche Bank, says a major revaluation of the AUDJPY is underway to reflect the divergent outlook for rates and terms of trade.
While markets have seen no movement in Japanese rates for years, they imply that Australian rates will rise from 0.1% to at least 1.75% this year and close to 3% by the middle of the month. next year.
Australian 10-year bond yields rose nearly 70 basis points this month to 2.86%, while Japanese yields remained around 0.24%.
At the same time, supply disruptions are expected to keep Australian commodity prices high for an extended period, a major drag on Japan which is a net importer of resources.
This in turn had seen Australia turn decades of current account deficit into a series of surpluses.
“Australia is now running an underlying tight basic balance approaching 5% of GDP, while Japan’s tight basic balance is expected to shrink to near zero at current energy prices,” Ruskin said, making reference to the combined balance of current and capital accounts.
“A revaluation of the Aussie is then warranted on external accounts alone. Welcome AUD/JPY to this brave new world.” (Editing by Jacqueline Wong)