Yen rises as Japan encourages pension funds to invest in domestic assets

The yen bounced on Friday on news that Japan plans to encourage ‌pension funds to increase their holdings of domestic financial assets, a move ⁠analysts said could offer greater support ⁠to the battered currency than intervention.

Japanese Finance Minister Satsuki Katayama said the government is pursuing measures that would include the Government Pension Investment Fund (GPIF), one ⁠of the largest pension funds in the world, to make "substantially greater investments in Japanese financial assets."

The yen jumped in the aftermath and was recently 0.6% higher at 161.44 per dollar.

"The pension funds are pretty large in ‌size, so you can imagine if a ⁠structural tilt to how they are allocating assets - currently, 50% is ​allocated to foreign investments in their strategic allocation, and a shift in that would definitely create a lot more inflows for domestic assets ... so that's supportive of the currency and at the same time, also supportive of equities and bonds," said Fabien Yip, a market analyst at IG.

"With the currency situation that we're seeing, with yen at close to 40-year lows against the dollar, and they are also kind of running out of ideas on how to support the currency ... I think trying to change the issue structurally or fundamentally, which is to create more flows into yen-denominated assets, would be supportive of the currency in the longer term."

The yen strength was ⁠broad-based. The euro fell 0.34% ​to 184.93 ​yen, while the British pound slid 0.27% to 217.06 ‌yen.

Before Friday's news, the yen had been languishing near 40-year lows, keeping traders on guard for potential intervention by ‌Japanese authorities.

In the broader market, the yen strength in turn pushed the dollar lower; it fell 0.3% against ​a basket of currencies to 100.61.

-Reuters