2010年03月15日11:01
Yen's Persistent Strength Frustrates Japan Leaders
Japan's stubbornly strong currency, something of an economic puzzle, is becoming a growing source of frustration for the country's new administration.
Prime Minister Yukio Hatoyama tried to weaken the yen Friday through the unusual step of talking down the Japanese economy in front of parliament. He said the yen doesn't reflect 'that Japan's economic and industrial conditions aren't strong enough.' Mr. Hatoyama called for international action to push the yen lower, saying there is a need to 'politically cooperate on the world stage.'
A weaker yen could make Japanese exports more competitive, aiding the world's second-largest economy, which the International Monetary Fund expects to grow just 1.7% this year.
The effect of Mr. Hatoyama's speech: The dollar eased slightly against the yen Friday, ending New York trading at 90.47 yen compared with 90.55 yen late Thursday.
The U.S. currency is down 2.8% against the yen this year. The yen is 18% stronger than it was in August 2008 compared to an inflation-adjusted basket of currencies weighted toward Japan's largest trade partners, according to the Bank of Japan.
A dysfunctional Japanese economy, super low interest rates, a ballooning deficit and plenty of government jawboning have done little to weaken the currency.
The yen's strength is 'perplexing,' says Pierre Gave, head of research at GaveKal, a Hong Kong-based analysis and investment firm. 'If there's one thing everyone agreed upon, it was that 2010 would be the year of yen weakness.'
Many investors are betting on a yen slide, which could still happen. Data issued by the Tokyo Financial Exchange shows market participants have been aggressively building bets against the yen.
Explanations for the yen's strength are varied. The difference between interest rates in Japan and abroad have been small, giving little incentive for investors to convert yen into other currencies. A strong Japanese trade surplus creates demand for yen to even out the nation's balance of payments.
In addition, foreign investors have converted dollars into yen to buy Japanese shares in recent months. A tax law is encouraging corporations to bring money home from abroad. Nomura estimates companies will repatriate 500 billion yen ($5.53 billion) in excess overseas capital in March.
The latest hope for yen weakening comes from reports that the Bank of Japan will increase the money supply through additional quantitative easing at its meeting this week. Mr. Hatoyama's government has been encouraging the central bank to be more aggressive to fight deflation.
But markets seem to be shrugging off the expected moves, which have been telegraphed in the news media.
'I suspect that it's in the price,' says Julian Jessop, economist at Capital Economics in London.
Leon Goldfeld, chief investment officer for HSBC Asset Management in Hong Kong, had been cautiously bullish about Japan in January. But he now thinks the government has lost its nerve to weaken the yen.
Another factor that some say could cause modest yen declines is the return of the yen carry-trade. The investment strategy involves borrowing Japanese yen to invest into higher-yielding currencies. Interest rates are creeping up in Australia, and expectations for rate hikes in the U.S. have increased.
A symbolic measure of funding interest rates, the three-month London interbank offered rate, or Libor, recently went in the yen's favor for the first time in several months, implying it might be cheaper to fund carry-trades in yen than in dollars.
At its height in the middle of last decade, the yen carry-trade was taken up by hedge funds around the world, along with Japanese retail investors. The trade drove the dollar to 123 yen in 2007.
But the financial crisis forced investors to unwind the trade when they needed the money back home. The dollar weakened to below 90 yen by January 2009, and hit a 14-year low in November at 85 yen. With interest rates near zero, the U.S. dollar became the cheapest funding currency.
Alex Frangos / Andrew Monahan
Japan's stubbornly strong currency, something of an economic puzzle, is becoming a growing source of frustration for the country's new administration.
Prime Minister Yukio Hatoyama tried to weaken the yen Friday through the unusual step of talking down the Japanese economy in front of parliament. He said the yen doesn't reflect 'that Japan's economic and industrial conditions aren't strong enough.' Mr. Hatoyama called for international action to push the yen lower, saying there is a need to 'politically cooperate on the world stage.'
A weaker yen could make Japanese exports more competitive, aiding the world's second-largest economy, which the International Monetary Fund expects to grow just 1.7% this year.
The effect of Mr. Hatoyama's speech: The dollar eased slightly against the yen Friday, ending New York trading at 90.47 yen compared with 90.55 yen late Thursday.
The U.S. currency is down 2.8% against the yen this year. The yen is 18% stronger than it was in August 2008 compared to an inflation-adjusted basket of currencies weighted toward Japan's largest trade partners, according to the Bank of Japan.
A dysfunctional Japanese economy, super low interest rates, a ballooning deficit and plenty of government jawboning have done little to weaken the currency.
The yen's strength is 'perplexing,' says Pierre Gave, head of research at GaveKal, a Hong Kong-based analysis and investment firm. 'If there's one thing everyone agreed upon, it was that 2010 would be the year of yen weakness.'
Many investors are betting on a yen slide, which could still happen. Data issued by the Tokyo Financial Exchange shows market participants have been aggressively building bets against the yen.
Explanations for the yen's strength are varied. The difference between interest rates in Japan and abroad have been small, giving little incentive for investors to convert yen into other currencies. A strong Japanese trade surplus creates demand for yen to even out the nation's balance of payments.
In addition, foreign investors have converted dollars into yen to buy Japanese shares in recent months. A tax law is encouraging corporations to bring money home from abroad. Nomura estimates companies will repatriate 500 billion yen ($5.53 billion) in excess overseas capital in March.
The latest hope for yen weakening comes from reports that the Bank of Japan will increase the money supply through additional quantitative easing at its meeting this week. Mr. Hatoyama's government has been encouraging the central bank to be more aggressive to fight deflation.
But markets seem to be shrugging off the expected moves, which have been telegraphed in the news media.
'I suspect that it's in the price,' says Julian Jessop, economist at Capital Economics in London.
Leon Goldfeld, chief investment officer for HSBC Asset Management in Hong Kong, had been cautiously bullish about Japan in January. But he now thinks the government has lost its nerve to weaken the yen.
Another factor that some say could cause modest yen declines is the return of the yen carry-trade. The investment strategy involves borrowing Japanese yen to invest into higher-yielding currencies. Interest rates are creeping up in Australia, and expectations for rate hikes in the U.S. have increased.
A symbolic measure of funding interest rates, the three-month London interbank offered rate, or Libor, recently went in the yen's favor for the first time in several months, implying it might be cheaper to fund carry-trades in yen than in dollars.
At its height in the middle of last decade, the yen carry-trade was taken up by hedge funds around the world, along with Japanese retail investors. The trade drove the dollar to 123 yen in 2007.
But the financial crisis forced investors to unwind the trade when they needed the money back home. The dollar weakened to below 90 yen by January 2009, and hit a 14-year low in November at 85 yen. With interest rates near zero, the U.S. dollar became the cheapest funding currency.
Alex Frangos / Andrew Monahan
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