SINGAPORE – The yen bounced on July 10 on news that Japan plans to encourage pension funds to increase their holdings of domestic financial assets, a move analysts said could offer greater support to the battered currency than intervention.
Japanese Finance Minister Satsuki Katayama said the government is pursuing measures that would include the Government Pension Investment Fund (GPIF), one of the largest pension funds in the world, to make “substantially greater investments in Japanese financial assets.”
The yen jumped 0.6 per cent to 161.39 per US dollar on the news, as at 10.52am Singapore time.
“The pension funds are pretty large in size, so you can imagine if a structural tilt to how they are allocating assets – currently, 50 per cent is allocated to foreign investments in their strategic allocation, and a shift in that would definitely create a lot more inflows for domestic assets … so that’s supportive of the currency and at the same time, also supportive of equities and bonds,” said Fabien Yip, a market analyst at IG.
“With the currency situation that we’re seeing, with yen at close to 40-year lows against the dollar, and they are also kind of running out of ideas on how to support the currency … I think trying to change the issue structurally or fundamentally, which is to create more flows into yen-denominated assets, would be supportive of the currency in the longer term.”
The yen strength was broad-based. The euro fell 0.34 per cent to 184.93 yen, while the British pound slid 0.27 per cent to 217.06 yen.
Before the July 10 news, the yen had been languishing near 40-year lows, keeping traders on guard for potential intervention by Japanese authorities.
The US dollar was set to end the week little changed, with renewed safe-haven gains offset by receding expectations of a rate increase from the Federal Reserve. REUTERS
