Ex-MOF Kato Sees Yen’s Drop Moderating Amid Japan Inc. Recovery

The pace of the yen’s decline will moderate as higher earnings at Japan Inc. boost demand for the nation’s currency amid the prospect of a U.S. interest-rate increase, a former top currency official at Japan’s Finance Ministry said.

“The profit outlooks of Japanese firms have largely supported the demand for Japanese assets,” Takatoshi Kato, now the president of Japan’s Center for International Finance, said in an interview in Tokyo on July 17. ‘There won’t be any sharp currency moves unless U.S. authorities take action that contradicts expectations for a moderate pace of increases.’’

The dollar rally kick-started by the Bank of Japan’s additional stimulus on Oct. 31 culminated in a 13-year peak against the yen of 125.86 on June 5. Since then, the Japanese currency has gained the most against Group of 10 currencies except for the pound, according to data compiled by Bloomberg.

Foreign investments in Japanese stocks, equity investment funds and long-term bonds totaled 4.68 trillion yen ($38 billion) in the first six months of 2015, swinging from net sales of 1.18 trillion yen the same period last year, Finance Ministry data show. By contrast, Japanese securities investments abroad during the same period turned to net buying of 7.65 trillion yen from a net selling of 1.58 trillion yen.

Mild Decline

The yen will be little changed at 125 per dollar by the end of this year, according to the median estimate of analysts surveyed by Bloomberg. It traded at 123.93 as of 12:27 p.m. in Tokyo.

While the yen’s weak trend remains in place as the BOJ reiterates its intention to take necessary actions to achieve its 2 percent inflation target, Japanese factors may become more relevant in determining the degree of its decline against the dollar, he said.

BOJ Governor Haruhiko Kuroda’s unprecedented stimulus is helping drive record corporate profits, sending Japan’s benchmark Topix stock index to their highest since 2007 in June, while pinning government bond yields near record lows and widening the spreads with U.S. Treasuries.

“Our survey of currency dealers shows many see a mild yen decline six months from now,” Kato, who was vice finance minister for international affairs from 1995 to 1997. “Whether to keep investing abroad will depend on how one sees interest rate differentials. Markets are not rife with speculative incentives.”

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