Japanese Structured Note Investors Bet on Might of Brazil’s Real

Japanese investors are piling into structured notes linked to the exchange rate between the Brazilian real and the yen on bets the Latin American country’s tighter monetary policies will maintain its currency’s strength.

Sales jumped to 31.8 billion yen ($310 million) in May compared with almost 5 billion yen in the first four months of the year and less than 1 billion yen for all of 2013, according to data compiled by Bloomberg. The real gained as much as 12 percent against the yen since reaching a five-month low of 41.37 yen in February.

Brazil’s central bank held its benchmark rate at 11 percent last week after raising it nine times in one year to tame inflation. Borrowing costs in Japan have remained near zero since 2010 with the Bank of Japan seeking to keep the currency weak to boost exports and the economy.

“We are probably closer to the end of the appreciation for the real than most people think,” said Eduardo Suarez, a foreign exchange strategist for Latin America at Bank of Nova Scotia in Toronto. “The central bank will reduce support for the currency, but yields will stay high for a long time.”

Deutsche Bank AG was the biggest issuer of structured notes linked to the exchange rate, selling 25 billion yen of five-year notes on May 13, according to data compiled by Bloomberg. The securities pay coupons of 8.05 percent every quarter as long as the real remains above 36.5 yen.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE