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GBP/JPY: A yield is a yield

Japan can teach us all lessons about living in a low-interest rate environment.

The country’s government has successfully issued low-coupon JGBs for years to a domestic audience that appreciates that a yield is a yield. So it is perhaps not too surprising to hear that the GBP/JPY carry trade appears to have come back into favour.

BNP Paribas this week reported that volume data from Japanese trading platform Gaitame showed that retail players were piling back into GBP/JPY – 63.2% of GBP/JPY positions are now long, up from a low of 39.4% on February 5.

Drew Niv, chief executive at FXCM, agrees: “It’s [GBP/JPY] also the number one traded currency pair in Japan now, eclipsing USD/JPY in volumes, at least for FXCM Japan and our Japanese white labels – that tends to be indicative of the rest of the guys as well.”

Since February 5, GBP/JPY has moved up from 129.50 to 132.50. But with the JPY showing some signs of being back in favour, it will be interesting to see what happens if the cross breaks lower. Tom next sterling may yield a ‘mighty’ 40 basis points more than JPY, but that is hardly going to be compensation if the pound comes in for another kicking.

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