Lira Uridashi Surge Not Over as Japan Eyes Carry, Barclays Says

Turkey’s reduction in bank borrowing costs won’t deter Japanese demand for lira that has produced carry returns of almost 16 percent this year, according to Barclays Plc.

Issuance of lira-denominated uridashi bonds has jumped more than 50 percent from the whole of last year to $3.2 billion in 2012. That’s the most foreign currency total after the Australian dollar and compared with the next biggest $2.66 billion in Brazilian reais, data compiled by Bloomberg show. Uridashi bonds are typically issued in non-yen currencies and sold to individual Japanese investors.

“The flows we saw in Turkey this year are still not at the levels we saw in Brazil in 2009-2010 and the first half of 2011,” said Christian Keller, the London-based head of emerging markets research at Barclays. “If that is any guide, you will think that potential flows to Turkey have still a way to go.”

The lira fetched 1.8013 per dollar and 43.69 yen as of 1:43 p.m. in Tokyo. Turkey’s currency has risen 5 percent against the U.S.’s and 7.4 percent against Japan’s in 2012. Economists in a Bloomberg survey estimate the currency to appreciate to 1.79 per dollar by the end of this year, and to 1.75 in 2013.

Carry trades that involve borrowing in a low-borrowing cost nations to invest in higher-interest rate economies have been popular among investors in Japan, where government bonds have the world’s third-lowest yields. Those investors are sometimes called “Mrs. Watanabe” as a reference to housewives who control household purse strings.

Sharpe Ratio

The Sharpe ratio, a measure of return per unit of risk, from borrowing in yen to buy lira was 1.9 since the end of 2011, the highest among 44 currencies tracked by Bloomberg after the Argentine peso. Two-year Turkish government debt yielded 7.31 percent yesterday, the second-highest after Brazil in emerging markets.

“We have had a long period where the Turkish lira has been the lowest volatility, highest yielding carry currency,” Keller said at an interview in Tokyo on Oct. 12. “If you are investing in bonds longer term, the lira is a good currency to be long.” A long is a bet that an asset’s price will increase.

Keller was a resident representative in Turkey at the International Monetary Fund from 2005 to 2007. Prior to that, he was based at the IMF headquarters in Washington, working on programs with emerging market economies in Europe, Latin America and Asia.

Turkish Central Bank Governor Erdem Basci reduced average bank borrowing costs to 5.75 percent on Oct. 4, the lowest level in 11 months, after he cut the upper end of his interest-rate corridor by 150 basis points last month to spur growth.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at; Kazumi Miura in Tokyo at

To contact the editor responsible for this story: Rocky Swift at

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