Japanese investors shun lira for rand

Japanese carry-trade investors are shunning the Turkish lira and buying the South African rand at the fastest pace since 2009, Bloomberg’s Masaki Kondo and Chikafumi Hodo reported.

The individual investors, who borrow at low rates in yen to take advantage of higher returns outside Japan, have raised their net long rand position for five-straight months while reducing their exposure to the lira for four months, Kondo and Hodo said.

“Japanese investors who cut losses in the lira could have shifted to the rand, given the better political situation” in South Africa, said Koji Fukaya, chief executive officer at FPG Securities Co. in Tokyo. "Emerging-market currencies haven’t been performing well, but Japanese investors have been seeking opportunities to take exposures in high yielders and hold them.”

The Turkish lira has slumped to record lows against the dollar this year on concern government policy is overheating the economy and will lead to a hard landing. In response, the central bank has raised interest rates by 500 basis points to 17.75 percent and may increase its benchmark rate again after inflation accelerated to more than 15 percent in June, economists say.

Japanese investors have reduced their lira exposure by 2.3 percent to 233,795 contracts worth 2.3 billion liras ($492 million), Bloomberg said.

The preference for the rand may also stem from optimism that President Cyril Ramaphosa will be able to turn the economy around. The rand slumped 11 percent against the yen in the first half, much lower than the lira’s 19 percent decline, Bloomberg said.

At the same time, investors worry about how President Recep Tayyip Erdoğan will tackle Turkey’s economic problems, which include high inflation and a wide current account deficit, Kondo and Hodo said. Its relations with the United States also remain fraught. U.S. officials have warned that Turkey may be punished with sanctions should it take delivery of a Russian missile defence system.

“Japanese investors may be reducing their lira positions on speculation President Erdoğan will put pressure on the central bank to lower interest rates,” according to Takuya Kanda, general manager at Gaitame.Com Research Institute Ltd. in Tokyo. “Investors may be turning to South Africa due to a lack of apparent negative factors.”

Erdoğan told investors in London in May that he planned to lower interest rates and take more control of monetary policy should he win the June 24 elections. He emerged victorious with 52 percent of the vote.