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Published on October 15, 2007

"The BOJ is likely to maintain its key rate unchanged after the US Federal Reserve cut its policy rate by half a percentage point. Yen carry trade will then return again. It is the nature of fund managers globally to seek low-cost funding to use to invest, and the Japanese rate is the cheapest in the world," the broker's managing director Jeremy Liau told reporters.

"When they borrow funds from Japan, capital will certainly flow into Asia."

Yen carry trade occurs when hedge funds, investors and companies borrow ultra-low-interest-rate yen and reinvest those funds in higher-yielding assets elsewhere. The BOJ's benchmark overnight rate now stands at 0.5 per cent, compared with the Fed fund rate at 4.75 per cent and the Bank of Thailand's one-day repurchase rate at 3.25 per cent.

Yen carry trade has recently boosted many stock markets in Asia to record highs.

Liau's comment highlighted remarks by Fiscal Policy Office director Wetang Phuangsup, who estimated that at least US$10 billion (Bt342 billion) of capital would flow into the Thai stock market next year. Around $8 billion has already flown into Thailand and the amount is expected to reach $9 billion at the end of this year. The Thai stock market has rallied 33 per cent so far this year despite the slow economy and political uncertainty following the coup last year.

United Securities was taken over last year by Japan-based Asia Partnership Fund Group.

Liau said the Thai stock market was now among the most popular investment destinations for retail Japanese investors as seen by the fact that they had opened around 1,000 stock trading accounts with the company.

Japanese investors' accounts represent 10 per cent of United Securities' total accounts. He said his firm has a market share below 1 per cent in the Thai stock market's trading volume but that was not a big issue.

"We don't focus on market share but rather we pay attention to profit making," he said. The broker posted a net loss of Bt5.31 million, compared with Bt2.1 million in net loss in the same period last year.

He said the Japanese-investor market has high potential as they are looking for higher returns and there were only a few competitors in Thailand to penetrate this market.

Meanwhile, Bualuang Securities' vice president Pongrat Ratanatavanananda said it was no surprise to see yen carry trade increasing as a BOJ rate increase is ruled out.

"Japan would like to see its currency weak, so it is possible to see the BOJ holding its key rate and this will create capital inflow," she said.

The Thai stock market this week will break the 900-point barrier, driven by fund flow, she forecast.

"There is an absence of fresh news but capital inflow will drive the SET index up further," she said.

Oranan Paweewun

 The Nation