Australian Retirement Trust Increases Yen Holdings, Reduces U.S. Treasury Exposure

Australia's second-largest pension fund, the Australian Retirement Trust (ART), is increasing its holdings in yen against the trend, having continuously added to its position over the past six months, with the yen allocation reaching a multi-year high. ART increased its position when the yen approached 160 against the U.S. dollar, with some funds coming from a reduction in U.S. dollar exposure. Jimmy Louca, ART's senior portfolio manager, stated that the market has overestimated the pressure of energy prices on the yen and underestimated the likelihood of interest rate hikes by the Bank of Japan. Currently, interest rate swaps indicate an approximately 80% probability of a rate hike by the Bank of Japan in September, with an October hike fully priced in by the market. A Reuters survey shows that 57% of economists expect the Bank of Japan to raise rates to 1.25% in September. At the same time, ART is underweight in U.S. Treasuries by about 0.5 percentage points, citing reasons such as U.S. inflation remaining above target, a resilient economy, and the competition for capital between the AI investment boom and the government. Louca anticipates that the yield on 30-year U.S. Treasuries may rise further towards 5.5%.

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