MacroScope

from Global Investing:

Watanabes shop for Brazilian real, Mexican peso

Are Mr and Mrs Watanabe preparing to return to emerging markets in a big way?

Mom and pop Japanese investors, collectively been dubbed the Watanabes, last month snapped up a large volume of uridashi bonds (bonds in foreign currencies marketed to small-time Japanese investors),  and sales of Brazilian real uridashi rose last month to the highest since July 2010, Barclays analysts say, citing official data.

Just to remind ourselves, the Watanabes have made a name for themselves as canny players of the interest rate arbitrage between the yen and various high-yield currencies. The real was a red-hot favourite and their frantic uridashi purchases in 2007 and 2009-2011 was partly behind Brazil's decision to slap curbs on incoming capital. Their ardour has cooled in the past two years but the trade is far from dead.

With the Bank of Japan's money-printing keeping the yen weak and pushing down yields on domestic bonds, it is no surprise that the Watanabes are buying more foreign assets. But if their favourites last year were euro zone bonds (France was an especially big winner)  they seem to be turning back towards emerging markets, lured possibly by the improvement in economic growth and the rising interest rates in some countries. And Brazil has removed those capital controls.

The breakdown of last month's data shows that real-denominated uridashi issuance in gross terms represented more than half the total. Another winner this year has been the Mexican peso -- peso uridashi accounted for almost 300 billion yen ($2.91 billion) of issuance as reforms have boosted Mexican assets. Almost 200 billion yen worth of uridashi sales have been in real (compared to over 400 billion back in 2011).

The other old Watanabe favourites, the Kiwi and Aussie dollars, are faring less well this year. Aussie uridashi, which topped the list in 2011, have seen redemptions of around 500 billion yen in 2013. See the Barclays graphic above.

Japan’s ‘quadrillion’ feat

The age of the quadrillion is finally here.

After years of being stuck in millions, billions, trillions and other terms that usually come up short of twelve zeros, Japan has broken out, with its debt crossing the magical 15 zero barrier.

Japan’s public debt exceeded 1 quadrillion yen — or 1,000 trillion yen ($10.39 trillion) — for the first time in June, Finance Ministry data showed last week.

Those are eye-popping sums even if you consider that a dollar fetches 96 yen today and the U.S. has a much higher public debt burden in dollar terms.

Turkish trouble

How much time does massive central bank currency intervention buy? About a day at a time in Turkey’s case. It spent $1.3 billion of its reserves yesterday to stop the lira going into freefall having thrown a record $2.25 billion at the market on Monday.

So far this year, the central bank has burned over $6 billion of its reserves which have now dropped below $40 billion. So that can’t go on for long, meaning an interest rate rise which a slowing economy really doesn’t need must be on the cards. The lira hit a record low versus the dollar on Monday.

Much of this is to do with the global emerging market sell-off sparked by the Federal Reserve’s exit plan from money-printing but Ankara has sown the seeds of crisis too, first with the very public standoff with protesters in its main cities who railed against what they see as Prime Minister Tayyip Erdogan’s increasingly authoritarian rule.