Yen Surge, Fed Gloom Threaten to Trap Japan Funds in Low Yields
- If yen rises, `difficult to pursue foreign bonds:' MassMutual
- Currency has gained 8% in 2016, most among Group-of-10 peers
The prospect of a stronger yen and U.S. yields staying lower for longer looks set to slow Japanese fund managers’ global hunt for yield.
Japanese investors turned net sellers of U.S. Treasuries in January for the first time in seven months and also offloaded U.K. and German bonds, Ministry of Finance data showed. The yen has strengthened about 8 percent this year against the dollar, the most among 10 major currencies, and strategists have been trimming forecasts for declines as the Bank of Japan’s negative rate policy only served to heighten anxiety over the global economy and demand for haven assets. The cost of hedging overseas investment is the highest since 2009 by one measure.
The Federal Reserve Wednesday held off from raising rates and scaled back forecasts for increases, sending the dollar to its lowest in eight months against a basket of currencies, while the benchmark 10-year U.S. Treasury yield has fallen the most this week since January. Eisuke Sakakibara, a former currency boss at Japan’s Finance Ministry, sees a yen surge to 105 per dollar, from 111.55 as of 6 a.m. in London, in the second half of this year as the outlook for the world economy worsens. Japan’s 10-year yield reached a record low minus 0.135 percent Friday.