Japan’s hints that it will take full action to support the yen will be broadly welcomed by global investors, affirms the CEO of one of the world’s largest independent financial advisory and asset managers.
The analysis from Nigel Green of deVere Group comes as the yen fell to its weakest level against the dollar in approximately 34 years on Tuesday.
The currency’s slip to 151.97 per dollar in Tokyo, surpassing the critical threshold of 151.95 that triggered direct currency intervention in October 2022, has raised concerns among investors worldwide.
Finance Minister Shunichi Suzuki has dropped signals of possible action to support it.
Nigel Green says: “The yen has historically been viewed as a safe-haven currency, prized for its resilience during times of economic turmoil.”
“Its recent weakening has raised fears of increased volatility in global markets, prompting investors to seek refuge in more stable assets.”
“Tokyo’s willingness to intervene to support the yen signals a commitment to restoring stability, which is crucial for investor confidence and market predictability.”
In addition, Tokyo’s intervention to bolster the yen is likely to have significant implications for various asset classes and sectors.
Currency markets
“In response to Tokyo’s efforts to strengthen the yen, investors may reassess their currency exposure and adjust their positions accordingly. Those holding yen-denominated assets may see an appreciation in the value of their investments, while those heavily exposed to the dollar may seek to hedge against potential losses.”
“Additionally, currencies perceived as safer alternatives to the dollar, such as the Swiss franc and the euro, may experience increased demand as investors diversify their portfolios,” notes the CEO.
Equity markets
Nigel Green comments: “Japanese equities could see a mixed reaction to Tokyo’s intervention.
“While a stronger yen may dampen the competitiveness of Japanese exporters, it could benefit companies with significant domestic operations by reducing import costs.
“Global investors may rebalance their equity portfolios, favouring sectors less dependent on exports and more resilient to currency fluctuations, such as technology, healthcare, and consumer goods.”
Fixed income markets
“Tokyo’s rumoured efforts may also influence global bond markets, particularly government bonds.
“A stronger yen is likely to lead to lower yields on Japanese government bonds, making them less attractive to foreign investors seeking higher returns.
“Consequently, investors may reallocate their fixed income portfolios towards bonds from other countries with higher yields or explore alternative fixed income instruments to optimize their returns.”
Commodity markets
“The impact of Tokyo’s intervention on commodity markets is likely to be nuanced. A stronger yen could potentially dampen demand for dollar-denominated commodities, such as oil and gold, leading to lower prices. However, it could also reduce import costs for Japan, benefiting industries reliant on commodity imports.”
He concludes: “Global investors need to remain alive to Tokyo’s commitment to supporting the yen which is poised to have far-reaching implications across various asset classes and sectors.”