Yen falls and investors have mixed feelings about officials’ response

The weakening of the yen, slipping past 150 per dollar for the first time since November, has triggered a slew of verbal interventions from Tokyo’s top currency officials, sparking “mixed feelings” from global investors.

The comments from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, come as the Japanese currency touched 150.87, its weakest against the dollar since the yen last broke the 150 threshold in November, following higher-than-expected inflation data for the US economy in January.

Of the news, Masato Kanda, Japan’s top foreign exchange official at the finance ministry, said: “Authorities are ready to respond 24 hours a day, 365 days a year,” While some recent moves were in line with fundamentals, others were “clearly speculative” and “undesirable,” he noted.

The deVere CEO says: “Investors are watching carefully. The yen going to 152 is the major focus point right now.

“Also in focus are the increasingly robust comments from Japanese currency officials. Global investors have mixed feelings on this – the authorities need to tread a fine line.”

He continues: Japan’s potential intervention to support the yen could be beneficial for global investors as it promotes currency stability.

“It could be seen as strong signal of faith in its own economic foundations. A stable yen bolsters confidence can attract global investors seeking secure and reliable investment opportunities.

Japanese policymakers, by demonstrating their commitment to maintaining a strong currency, encourage foreign investors to explore opportunities within the Japanese market. The assurance of a stable currency helps create an environment where investors can “confidently allocate their capital, anticipating a reduced risk of currency fluctuations impacting their returns negatively.”

In addition, a stronger yen would enhance the appeal of Japanese assets to international investors. As the yen appreciates, it has the potential to reduce the cost of investing in Japanese stocks, bonds, and real estate for foreign investors. This creates an advantageous scenario for those looking to diversify their portfolios and capitalise on the potential long-term gains in the Japanese market.

However, there are growing concerns and nervousness surrounding the intensity of the intervention language from Tokyo's currency officials. “The question arises: do these strong statements suggest weak fundamentals underlying Japan's economy?” asks Nigel Green.

“It's crucial to acknowledge that the recent rapid moves in the currency are a mix of fundamentals and speculation, as mentioned by Masato Kanda. 

“While some level of intervention may be necessary to curb excessive speculation, an overly aggressive stance can raise doubts about the strength of Japan’s economic fundamentals.

“If Tokyo steps in to support too fast or too much, the yen due to weak economic fundamentals, it might be seen as a defensive move rather than a proactive strategy. This defensive posture could erode investor confidence and lead to a lack of faith in the sustainability of the yen’s strength.

“Therefore, striking a balance becomes imperative for Japanese authorities.”

He concludes: “The intensity of language used by authorities must strike a balance to reassure investors about Japan’s economic fundamentals without signalling weakness.”

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