Japanese 10,000 yen, left, and U.S. 100 dollar banknotes (Photographer: Tomohiro Ohsumi/Bloomberg)

Trump's `Shock and Awe' Trade Tactics Look Bullish for the Yen

(Bloomberg) -- U.S. President Donald Trump’s escalating “shock and awe” trade rhetoric could prove to be a boon for the yen, according to Erin Browne at UBS Asset Management.

The head of asset allocation at the firm, which manages 776 billion Swiss francs ($811 billion), predicts the yen will rally to 100 against the greenback by year-end, from about 106.75 currently. That’s because investors will seek a haven amid escalating tariff threats between the U.S. and China.

What’s more, the Bank of Japan will eventually follow the Federal Reserve in withdrawing stimulus, and that’s going to support the yen too, she said.

“We are long the yen right now -- it’s one of our favorite diversifiers of risk,” Browne said in an interview in New York. Meanwhile, the dollar is overvalued by about 10 percent, and “over the next few years we are going to continue to see the dollar weaken.”

Here are some of Browne’s other investment views:

  • On trade war: “We don’t think that President Trump is looking to engage in a full-blown trade war, but we do think that he’s willing to put additional pressure, and take this to the brink, in order to extract the greatest concessions from China.”
  • Euro: likely to advance to $1.30 against the dollar by year-end
  • Bonds: Increased Treasury positions
    • Bearish high-yield, and is looking to add short positions on investment-grade bonds
  • Equities: Bullish on equities longer-term, but remains cautious because of elevated risk from trade tension
  • EM: “We really like emerging markets,” particularly Asian currencies relative to those in Latin America

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