* Hasenstab says strong yen reigniting deflationary pressures
* Franklin Templeton favours short euro amid political risks
* Says emerging markets have proved resilient
* U.S. Treasuries could be vulnerable to sell-off
(Writes through)
By Dhara Ranasinghe
LONDON, Aug 31 (Reuters) - Franklin Templeton's star fund manager Michael Hasenstab believes yen strength is "stifling" the Japanese economy and may be set for a reversal, while a short position on the euro is favoured in the face of political risks in the region.
The yen has rallied 14 percent against the dollar this year as worries about global growth and uncertainty about the outlook for U.S. interest rate rises prompted investors to sell the dollar and buy the safe-haven Japanese currency.
"The exceptional rally in the Japanese yen is stifling the economy, and it's reigniting deflationary pressures," Hasenstab was quoted as saying in a release on Wednesday of a roundtable discussion of Franklin Templeton's investment team on politics, policies and market resiliency.
"In our view, the Japanese economy and policymakers will likely find it very difficult to deal with the yen at these inflated levels, so the massive yen rally appears tenuous to us and poised for a reversal."
The yen has fallen in recent days and was trading near a one-month low against the dollar on Wednesday. A slew of weak data from Japan has stoked speculation that the Bank of Japan could ease policy further next month.
FRX/
Hasenstab said rising populism in Europe and the U.S. contrasted with resilience in many emerging market economies and that Franklin Templeton favoured being short euro as a hedge against political risks that could continue to unfold.
Britain's vote in favour of leaving the European Union sent shockwaves across the region in June, while Spain has been without a functioning government since inconclusive elections in December and June. Italy is also in the spotlight ahead of a constitutional referendum later this year.
"Europe has seen a rise in nationalism and populism that we think could draw into question the whole euro zone project," said Hasenstab, who is well known for profits made on a 2011 bet on Ireland's bond market after the country was bailed out.
On the U.S. economy, Hasenstab said the rally in Treasuries could reverse as quickly as the run up in prices.
"As we look toward the end of the year, we have to question whether the type of U.S. government bond yields we have today make sense given rising inflation and the resiliency we've seen in the U.S. economy," he said.
The past week has seen talk about a near-term rise in U.S. rates gain ground following hawkish comments from Federal Reserve officials. Ten-year U.S. Treasury yields are on course for their biggest monthly rise in over a year as investors continued to build up bets that the Fed will hike rates before the year is out.
RESILIENT EMs
Hasenstab, chief investment officer at Templeton Global Macro, manages assets worth roughly $50 billion in his flagship fund. He is optimistic about emerging markets despite ructions in developed economies.
He said barring a couple of exceptions such as Turkey and Venezuela, emerging markets have been relatively stable because their underlying economies have proved "resilient" even in the face of some slowdown in growth.
"Areas that once were thought of as highly risky and vulnerable (like Mexico, Indonesia and India) have proved to be following what we view as a very consistent path that, I think, has benefited investors," Hasenstab added.
The benchmark emerging markets stock index is up almost 13 percent this year, compared with a rise of almost 7 percent in the S&P 500 .
(Reporting by Dhara Ranasinghe, additional reporting by Anirban Nag; Editing by Catherine Evans) ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))
* Franklin Templeton favours short euro amid political risks
* Says emerging markets have proved resilient
* U.S. Treasuries could be vulnerable to sell-off
(Writes through)
By Dhara Ranasinghe
LONDON, Aug 31 (Reuters) - Franklin Templeton's star fund manager Michael Hasenstab believes yen strength is "stifling" the Japanese economy and may be set for a reversal, while a short position on the euro is favoured in the face of political risks in the region.
The yen has rallied 14 percent against the dollar this year as worries about global growth and uncertainty about the outlook for U.S. interest rate rises prompted investors to sell the dollar and buy the safe-haven Japanese currency.
"The exceptional rally in the Japanese yen is stifling the economy, and it's reigniting deflationary pressures," Hasenstab was quoted as saying in a release on Wednesday of a roundtable discussion of Franklin Templeton's investment team on politics, policies and market resiliency.
"In our view, the Japanese economy and policymakers will likely find it very difficult to deal with the yen at these inflated levels, so the massive yen rally appears tenuous to us and poised for a reversal."
The yen has fallen in recent days and was trading near a one-month low against the dollar on Wednesday. A slew of weak data from Japan has stoked speculation that the Bank of Japan could ease policy further next month.
Hasenstab said rising populism in Europe and the U.S. contrasted with resilience in many emerging market economies and that Franklin Templeton favoured being short euro as a hedge against political risks that could continue to unfold.
Britain's vote in favour of leaving the European Union sent shockwaves across the region in June, while Spain has been without a functioning government since inconclusive elections in December and June. Italy is also in the spotlight ahead of a constitutional referendum later this year.
"Europe has seen a rise in nationalism and populism that we think could draw into question the whole euro zone project," said Hasenstab, who is well known for profits made on a 2011 bet on Ireland's bond market after the country was bailed out.
On the U.S. economy, Hasenstab said the rally in Treasuries could reverse as quickly as the run up in prices.
"As we look toward the end of the year, we have to question whether the type of U.S. government bond yields we have today make sense given rising inflation and the resiliency we've seen in the U.S. economy," he said.
The past week has seen talk about a near-term rise in U.S. rates gain ground following hawkish comments from Federal Reserve officials. Ten-year U.S. Treasury yields are on course for their biggest monthly rise in over a year as investors continued to build up bets that the Fed will hike rates before the year is out.
RESILIENT EMs
Hasenstab, chief investment officer at Templeton Global Macro, manages assets worth roughly $50 billion in his flagship fund. He is optimistic about emerging markets despite ructions in developed economies.
He said barring a couple of exceptions such as Turkey and Venezuela, emerging markets have been relatively stable because their underlying economies have proved "resilient" even in the face of some slowdown in growth.
"Areas that once were thought of as highly risky and vulnerable (like Mexico, Indonesia and India) have proved to be following what we view as a very consistent path that, I think, has benefited investors," Hasenstab added.
The benchmark emerging markets stock index is up almost 13 percent this year, compared with a rise of almost 7 percent in the S&P 500 .
(Reporting by Dhara Ranasinghe, additional reporting by Anirban Nag; Editing by Catherine Evans) ((Dhara.Ranasinghe@thomsonreuters.com; +442075422684;))
