The USD/JPY moved higher on Oct. 19, amid speculation Japan’s $1.2 trillion retirement fund will soon reallocate its funds.
The currency pair broke past 107 as the yen declined versus all 16 of its major peers, according to Bloomberg. Japan’s currency depreciated after the Nikkei newspaper announced, without attribution, that the Government Pension Investment Fund will bolster its domestic shares to roughly 25 percent from 12 percent, and will increase its goal for foreign debt and equities to a combined figure of approximately 30 percent, compared to the previous 23 percent.
“The fact that they’ve put numbers on the reallocation implies that they’re closer to implementing it and the flows actually occurring,” Sam Tuck, who works for ANZ Bank New Zealand Ltd. in Auckland as a senior currency strategist, told the news source. “Markets will be looking at those flows as supportive for equity markets and outflows from Japan, which would both be negative for the yen based on current correlations.”
When contacted over the weekend, spokesmen at both the GPIF and the health ministry – which oversees public pensions – were unable to comment, according to Bloomberg.
Currently, the health ministry, officials of the retirement fund and members of the GPIF investment committee have different thoughts on how the reallocation should happen, and this could push the asset review to as far back as December, Takatoshi Ito, an academic and government advisor on overhauling public pensions, told Bloomberg.
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He said during an interview on Oct. 14 that it would be unwise to announce a new investment strategy before altering the allocations of the fund portfolios, according to the news source.
In addition to the developments that pertain to the GPIF, another factor that could impact the USD/JPY is a change in the policies that Japanese government has been using to prop up the Asian nation’s ailing economy. The Bank of Japan has been harnessing robust monetary stimulus for the last two years, and this development has pushed the yen lower, Reuters reported.
The yen fell to 110.09 against the greenback on Oct. 1, and more recently increased to roughly 106 amid speculation the Federal Reserve will postpone increasing its benchmark interest rates, according to the news source. If the dollar reaches between 115 and 120 yen, the Japanese authorities would need to get involved, Eisuke Sakakibara, who served as the Asian nation’s currency czar during the 1990s, told Reuters this month.
However, he told the news source he does not anticipate a decline of this magnitude.
Amid these developments, investors who want to participate in forex trading might benefit from knowing about the factors that could potentially impact the USD/JPY. By knowing about these trends, market participants might be able to make better-informed trades.
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