Investment Clock insights

Overweight Japan on dollar strength to come

Trevor Greetham

14 April 2016

The US dollar has weakened in recent months as the deflationary impact of China led the market consensus to move from four US interest rate hikes to one or no hike over 2016. Japanese equities have been hurt by yen strength while the emerging markets have seen a strong relief rally as dollar weakness boosted commodity prices and eased financial conditions. 

With US economic data firming up, we think interest rate expectations have receded too far and we expect the dollar to strengthen as the US Federal Reserve starts to prepare the market for further gradual interest rate rises from June onwards. Moreover, we believe the Bank of Japan is highly likely to announce additional stimulus at the end of this month, emphasising the divergence in monetary policy and weakening the yen. We remain overweight Japan in our multi asset Funds.

Focus chart: Japan vs EM as a US dollar call

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.