Westpac: FX Relativities For Japanese Still Favourable

Westpac note that "it is relatively well known that the wholesale Japanese investors are attracted to those bond markets where the 3m fx hedged yields are greater than JGBs. Australia is currently one of the countries that currently have positive characteristics in this regard, and Japanese demand has been significant over the past 3 months or so. There has been a lot of demand at the longer end of the curve (20yr maturity), which due to the steepness of the AU curve exhibits a substantial pick-up relative to a 5yr or a 10yr bond. Although we do note that the recent curve flattening is slowly eroding that advantage. Still, AU bonds are in a very advantageous position relative to alternative markets in which Japanese investors might operate."