Japan's New Strategy Strengthens Yen, Pension Funds Urged to Focus on Local Assets
Newsmaker.id - The Japanese yen strengthened against the US dollar on Friday (July 10th) after the Japanese government encouraged pension funds to increase investment in domestic financial assets. The yen rose around 0.6% to around 161.44 per US dollar after previously hovering near its weakest level in four decades.
Japanese Finance Minister Satsuki Katayama said the government would review measures to encourage pension funds, including the Government Pension Investment Fund (GPIF), to invest a larger portion in the domestic market. The GPIF is one of the world's largest pension funds with assets of approximately ¥293.4 trillion (US$1.81 trillion).
This measure is considered to reduce capital outflows from Japan. Increased purchases of domestic stocks and bonds have the potential to increase demand for the yen because investors need to exchange foreign currency into yen to purchase Japanese assets.
Market participants view this policy as an indirect intervention to support the yen and the Japanese government bond market. Following Katayama's statement, the yield on 10-year Japanese bonds reportedly fell, while the domestic stock market also strengthened.
However, the yen's strength still faces challenges from the interest rate differential between Japan and the United States. Expectations of the Fed's tighter policy and concerns about Japan's fiscal policy could still limit USD/JPY declines in the short term. (CP)
