The yen rallied on Friday after news that Japan plans to encourage pension funds to increase their holdings of domestic financial assets, but analysts said the measures could amount to more support for the battered currency than intervention.
Japan’s Finance Minister Satsuki Katayama said the government was pursuing measures that include encouraging the Administrative Pension Investment Fund, one of the world’s largest pension funds, to “invest significantly in Japanese financial assets.” The yen depreciated by 162 yen to the dollar and soared to an intraday high of 161.285 yen. The previous price was 161.75 yen to the dollar, up 0.38%.
IG market analyst Fabian Yip said: “The pension fund is quite large and currently has 50% allocated to overseas investments in its strategic allocation. So if this changes, there will definitely be more inflows into domestic assets.”
“It supports the currency, but it also supports stocks and bonds.”
Wide-ranging appreciation of the yen
The gains were broad-based, with the euro and British pound down about 0.3% and 0.2% against the yen, respectively. Before Friday’s news, the yen was languishing near a 40-year low, with traders wary of possible intervention by Japanese authorities.
Friday’s rise in the yen caused the dollar to fall, falling slightly to 100.85 yen against a basket of currencies. The world’s most traded currency was scheduled to end the week little changed. The euro was unchanged at $1.1430, while the pound gained 0.16% to $1.3424.
War cloud emotions
Investors seemed to ignore rising tensions in the Middle East for now, but the collapse of the ceasefire between the United States and Iran has once again cast a cloud over the outlook for energy prices and global inflation.
“The feeling of war is still hanging over the sentiment,” said Thierry Wisman, global currency and rates strategist at Macquarie Group.
“The question facing traders is whether Iran is willing to return to large-scale kinetic warfare with the United States and its allies if necessary to strengthen its claim to control of the Strait of Hormuz.”
(Reporting by Rae Wee; Additional reporting by Harry Robertson and Sophie Kiderlin; Editing by Thomas Derpinghaus, Kim Coghill, Helen Popper and Sharon Singleton)
