Yen Buying During Tokyo Hours Shows Abe Fails to Change Mindsets

  • Currency has gained in Japan while declining overseas
  • Amundi says only foreigners buy into Abe's weak yen policy

Japanese Prime Minister Shinzo Abe’s efforts to end deflation are meeting resistance from his nation’s own investors.

While an expansion of already unprecedented stimulus by the Bank of Japan and a shift overseas by the Government Pension Investment Fund helped push the yen to a 13-year low versus the dollar in June, most of the declines have come outside of Japanese trading hours, with the currency actually strengthening in Tokyo.

Abe swept to power at the end of 2012 on a pledge to reinvigorate the economy through structural reforms and massive monetary easing aimed at weakening the yen from near a record high. So-called Abenomics has found limited success almost three years since its inception, with consumer price dropping into negative territory in August. The outlook has become murkier as a China-led selloff in global stocks fueled demand for Japan’s currency as a haven, erasing about all of its loss for the year.

“Japanese institutional investors have lost lots of money during the yen appreciation period over the past few decades,” so are unwilling to unwind over-hedged foreign currency exposures, said James Kwok, the London-based head of currency management at Amundi Asset Management, which oversees about $1 trillion. “Foreign investors buy into Abe’s weak yen policy and act more decisively.”

October Surprise

The dollar-yen exchange rate has risen about 7 percent since Oct. 31, when the BOJ expanded stimulus to the extent it could buy every new bond the government issues. The $1.2 trillion GPIF -- the world’s largest manager of retirement money -- announced a plan to boost overseas investments to 40 percent of its portfolio in the biggest overhaul in its history.

During Tokyo trading hours over that same period, the dollar declined 2.2 percent against the yen.

The yen was at 120.32 per dollar at 6:58 a.m. in London, compared with 125.86 reached on June 5, the lowest since 2002.

BOJ Governor Haruhiko Kuroda has said the central bank’s asset purchases would encourage domestic investors to shift their portfolios to stocks, foreign fixed-income securities and other riskier assets.

GPIF President Takahiro Mitani said in an interview in July that the yen would remain weak and there’s no need to rush to consider hedging. A spokesman for the fund said Thursday its core portfolio hasn’t adopted currency protection and declined to comment further on other investments.

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