Yen rises as Japan woos pension funds into domestic assets
By Rae Wee
SINGAPORE, July 10 (Reuters) – The yen rebounded on Friday on news that Japan plans to encourage pension funds to increase their domestic financial holdings. Analysts said the move could provide more support to the battered currency than intervention.
Japanese Finance Minister Satsuki Katayama said the government was pursuing measures that would include the Government Pension Investment Fund (GPIF), one of the world’s largest pension funds, to invest “significantly more in Japanese financial assets.”
The yen jumped from a weak low of 162 per dollar to an intraday high of 161.285. It was last at 161.64 per dollar, gaining 0.46%.
“The size of pension funds is quite large, so you can imagine if there is a structural change in how they allocate assets – currently 50% in their strategic allocation is allocated to foreign investments, and a change in that would certainly create much more inflows for domestic assets… so that supports both the currency and stocks and bonds,” said Fabien Yip, market analyst at IG.
“With the currency situation we’re seeing, the yen is at 40-year lows against the dollar, and they’re also running out of ideas on how to support the currency… I think trying to change the problem structurally or fundamentally, meaning creating more flows into yen-denominated assets, would be supportive of the currency in the long run.”
The yen’s strength was broad-based. The euro lost 0.3% to 184.94 yen, while the British pound lost 0.28% to 217.02 yen.
Before Friday’s news, the yen was hovering near 40-year lows, keeping traders alert to possible intervention by Japanese authorities.
The yen’s rise caused the dollar to fall, falling 0.15% against a range of currencies to 100.75.
Investors appear to be ignoring tensions flared in the US-Israeli war against Iran for now, but the breakdown of the ceasefire between the US and Iran has once again cast a cloud over the outlook for energy prices and global inflation.
“The specter of war still hangs over sentiment,” said Thierry Wizman, global currency and interest rate strategist at Macquarie Group.
“The question facing traders is whether Iran is willing to return to large-scale kinetic warfare with the United States and its allies if necessary to strengthen its claim to control over the Strait of Hormuz.”
The dollar will end the week little changed, with renewed safe-haven gains offset by declining expectations for a Fed rate hike.
