Opinion: As Japan reopens, asset owners face better investment options, currency dilemmas

Sep 28, 2022 | News On Japan

TOKYO - Japan's depreciating yen made the reopening of the country's borders inevitable. While the move will allow dealmaking to be smoother, new overseas investments will be a costly affair for Japanese asset owners.

Japan last week decided to reopen its borders to foreign visitors, following pressure for things to get back to normal and for business and tourism to return. Prior to its reopening, rigorous restrictions had been in place on overseas entries due to the Covid-19 pandemic.

The pressure for Japan to open came in large part from the dwindling yen. On September 27, 2021, one US dollar stood at ¥111. One year later, the same dollar was at Y144.45, a stark 30% increase.

Japan likely spent a record Y3.6 trillion ($25 billion) on September 22 in its first dollar-selling yen-buying intervention in 24 years, all to stem the currency's sharp weakening, according to estimates by Tokyo money market brokerage firms. The move seemed apparent given that the Bank of Japan had not followed other developed economies in carrying out interest rate hikes.

The currency dilemma has prompted Japanese asset owners to reconsider their overseas investments, sources told AsianInvestor. Overseas fixed income, for instance, quickly loses its marginal appeal over Japanese fixed income when hedging costs are added to the mix — although with interest rates rising overseas, diversification could still prove attractive despite the preference for a stronger yen. ...continue reading

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