Yen Assets at Foreign Central Banks at Record, BOJ Data Show

Foreign central banks boosted their holdings of yen-denominated assets to the highest level in at least a decade, an indication Europe’s debt crisis has bolstered the currency’s appeal as a haven.

The holdings rose 26 percent to 44 trillion yen ($555 billion) in Dec. 2011, the highest since comparable data were made available in 2002, according to information provided by the Bank of Japan. Bonds made up 40.7 trillion yen of the total, according to the central bank data.

Increased demand for Japanese assets overseas underscores the difficulty authorities are having in limiting currency gains since the yen surged to a post-World-War-II high against the dollar in October. Japan sold 14.3 trillion yen last year, the third-highest ever, to limit the damage a stronger yen inflicts on the profits of the nation’s exporters.

“Central banks want the yen as they seek safe assets amid the European debt crisis,” said Akihiko Inoue, chief strategist at Mizuho Investors Securities Co. in Tokyo, one of the 25 primary dealers obliged to bid at state debt sales. “This is a factor that’s pushing up the yen and giving currency authorities a difficult time.”

The yen traded at 79.63 against the dollar as of 5:04 p.m. in Tokyo. It has risen more than 4 percent since mid-March. Europe’s woes have also fueled demand for Japanese government debt, with the yield on benchmark 10-year bond falling to a nine-year low of 0.79 percent on June 4.

Bond Holdings

Individual investors are also buying more Japanese government bonds. Foreign ownership of Japanese government debt rose to a record 8.3 percent in 2011, central bank data shows.

Countries are also seeking other Asian assets as they diversify their holdings. Five central banks placed 3.06 billion yuan of orders for debt yesterday, more than the 2 billion yuan available to them, according to the Chinese Finance Ministry.

The increase of yen-denominated assets is related to the “evaluation of currencies as the euro weakens against the yen and dollar,” Rintaro Tamaki, Japan’s former top currency official and deputy secretary general at the Organization for Economic Cooperation and Development, said in an interview in Tokyo today. “This is the globalization of the yen. There’s nothing strange about it.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE