Uridashi tsunami about hit ?
- 00:03:28
- YouTube
Uridashi tsunami about hit ?
Issuance of Uridashi and Eurokiwi bonds slumped to NZ$313 million in March, down from NZ$1.3 billion in February and it's lowest monthly level since July 2004, figures from the Reserve Bank and Westpac show. The fall in new New Zealand dollar bonds issued to Japanese and European retail investors will be closely watched by currency traders and the Reserve Bank. They are looking for any signs that foreign investors owed more than NZ$50 billion may decide to take their money home. This potential for an exodus known as the "Uridashi Tsunami" is one of the factors behind fears of a sharp slide in the New Zealand dollar and a subsequent rise in wholesale interest rates, as foreign investors would demand a higher risk premium to finance our current account deficit of around NZ$13 billion a year or 7% of GDP. Westpac figures show Uridashi issuance fell to NZ$88 million in March, while Eurokiwi issuance fell to NZ$225 million. The total issuance of NZ$313 million compares with expected maturities in March of NZ$1.691 billion. About NZ$13.3 billion worth of Uridashis and Eurokiwis are expected to mature before the end of 2008. Overall, the total stock of Uridashi and Eurokiwis stood at over NZ$50 billion at the end of March. That is equal to about a year and half's worth of export receipts. About two thirds of that Uridashi wave is due to mature in the next 18 months at the rate of about NZ$1.2 billion a month. Uridashi issuance seems closely linked to the New Zealand dollar/Yen rate, or vice versa, as seen in this chart below. The New Zealand dollar has fallen about 8% versus the Yen to around 78.5 yen in the last six weeks and is well off highs of over 90 yen last year. Uridashi issuance has dipped sharply before, but then rebounded. It last dipped in the last 4 months of 2006 when the New Zealand dollar/yen rate fell from 82 yen to 70 yen in the space of a quarter. The risk is that Japanese investors who have ridden the rise in the New Zealand dollar from under 50 yen in 2000 to over 90 yen last year will look to exit the currency with their gains intact before a fall. However, New Zealand's official interest rates remain at 8.25% while Japan's official rate is at 0.5%, making the New Zealand yield very attractive to retail investors. Observers also said caution should be taken into reading too much into the sharp fall in March, given that Japanese investors are often cautious at the end of the financial year to March 31. However, in March 2006 there was NZ$1.528 billion of issuance and in March 2005 there was NZ$1.071 billion of issuance. The last month where issuance was lower was NZ$214 million in July 2004 and the previous lowest March was in 2002. There are also signs that Japanese investors are turning to currencies with even higher interest rates than New Zealand. The South African Rand is proving particularly popular at the moment. Rand uridashi issuance jumped to 3.38 million rand (NZ$524 million) in February, taking it ahead of the Australian dollar Uridashi issuance. The South African central bank is now widely expected to increase its official interest rate to 11.5% from 11% at its next meeting on April 10. See this Reuters.com story for more background. It is too early to say if the Uridashi Tsunami is about to break after just one month's figures, but it's one to watch closely.
YouTube | April 1, 2008
