`Criminally Expensive' Yen Needs Central Bank's Help, Standard Life Says
Sept. 1 (Bloomberg) -- Former Bank of Japan board member Nobuyuki Nakahara talks about the central bank's decision to expand a bank-loan program as a means of halting the yen's advance. He speaks from Tokyo with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Aug. 31 (Bloomberg) -- Shaun Osborne, chief currency strategist at TD Securities Inc., talks about the outlook for the dollar-yen exchange rate. Osborne speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Aug. 31 (Bloomberg) -- Thomas Harr, Singapore-based Asia foreign-exchange strategy head at Standard Chartered Plc, talks about Japan's attempts to stem gains in the yen. Bank of Japan Governor Masaaki Shirakawa and his board expanded a bank-loan program by 10 trillion yen ($118 billion) after an emergency meeting yesterday in the wake of the yen reaching a 15-year high. Harr also discusses the outlook for the Japanese and U.S. economies. He speaks with Linzie Janis on Bloomberg Television's "Global Connection." (Source: Bloomberg)
Japan needs to drive down the value of the yen against the dollar to stop the country’s exporters from losing out to competitors in South Korea, according to Standard Life Investments.
The Japanese economy grew an annualized 0.4 percent in the three months ended June 30, while South Korea’s gross domestic product expanded 7.2 percent in the second quarter from a year earlier. The yen’s strength is eroding Japan’s competitiveness, especially against South Korea, Standard & Poor’s said in a report yesterday. The yen has risen 12 percent versus the won in 2010, outpacing all of its 16 most-active counterparts versus the Korean currency.
“The yen is criminally expensive,” Euan Munro, the 40- year-old head of Standard Life’s team investing in a range of assets, said in an interview at the company’s headquarters in Edinburgh. “The Bank of Japan will have to come in to intervene in the not-too-distant future. At this level, they are going to be totally destroyed by Korea.”
The yen traded at 14.05 won as of 11:27 a.m. in Tokyo from 14.03 won in New York yesterday. It climbed to 14.30 on Aug. 31, the strongest since July 13, 2009.
The Bank of Japan added 10 trillion yen ($119 billion) in liquidity injections on Aug. 31 and Finance Minister Yoshihiko Noda said the same day the government is ready to take “bold action” on the currency if necessary.
Japan last changed its benchmark interest rate in December 2008, cutting it to 0.1 percent from 0.3 percent.
Selling Japan
Aegon Asset Management, which is also based in Edinburgh, said last month it sold Japanese stocks and bought Asian currencies, including the won and Taiwan dollar, on concern about the Japanese economy and the effect of the strong yen.
“Japan is really crippled at this level of exchange rate,” Munro said.
The Standard Life Global Absolute Return Strategies fund, which more than tripled in size over the past year to 4.5 billion pounds ($7 billion), used options to bet on the decline of the yen for more than two years. The currency has appreciated 33 percent against the dollar since the start of 2008.
The bet hasn’t derailed performance. The fund has returned 16 percent in the past year investing in stocks, government bonds, credit, currencies, derivatives and options. The MSCI World Index rose 5 percent during the last 12 months.
The fund has returned 12 percent this year, ranking second among 41 similar U.K.-registered funds that have on average returned 1 percent, according to Chicago-based research firm Morningstar Inc.
Buying Credit
The fund benefited from Standard Life’s decision in the fourth quarter of 2008 to invest in assets such as credit, based on the expectation that interest rates would stay low for longer than most other investors anticipated, Munro said.
“We took the view that enough had been done to shore up the financial system,” Munro said. “We were happy to take a big exposure to credit, particularly financial-sector credit. That worked really well for us until the early part of this year.”
Those sorts of returns may not continue because markets have become tougher to navigate, Munro said.
At the end of July, stocks accounted for about 34 percent of the fund’s assets, bonds made up 28 percent and the rest was in cash and related instruments such as derivatives and options.
“We wouldn’t like people to feel they can get 20 percent every year,” he said. “We saw the big picture and everything panned out really well, but we don’t think there are any great anomalies in the markets at the moment.”
To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.
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