Yen rises 0.6% to 161.44 as Japan urges pension funds to boost domestic asset holdings

SINGAPORE — The yen strengthened on Friday (Jul 10) following news that Japan plans to encourage pension funds to increase their holdings of domestic financial assets — a move analysts say could offer more durable support to the battered currency than direct intervention.

Key Developments

• The yen rose 0.6% to 161.44 per dollar.
• Japanese Finance Minister Satsuki Katayama announced the government is pursuing measures that would include the Government Pension Investment Fund (GPIF) — one of the world's largest pension funds — to make "substantially greater investments in Japanese financial assets."
• Before Friday's news, the yen had been languishing near 40-year lows, keeping traders alert to the possibility of intervention by Japanese authorities.

Analyst Commentary

Fabien Yip, market analyst at IG, noted:

"The pension funds are pretty large in size, so you can imagine if a structural tilt to how they are allocating assets — currently, 50 per cent 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."

He added:

"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."

Broader Currency Moves

The yen's strength was broad-based:

| Currency Pair | Change | |---|---| | Euro vs Yen | Fell 0.34% to 184.93 yen | | British Pound vs Yen | Fell 0.27% to 217.06 yen | | Dollar Index | Fell 0.3% to 100.61 |

Market Context

Overnight, investors appeared to brush aside escalating tensions in the US-Israeli conflict with Iran, as oil prices fell and stocks rallied. However, currencies remained largely rangebound. The collapse of a ceasefire between the US and Iran has once again cast uncertainty over energy prices and global inflation.

Thierry Wizman, global FX and rates strategist at Macquarie Group, commented:

"The specter of war still hangs over sentiment. The question confronting traders is whether Iran is willing to return to large-scale kinetic war with the US and its allies if necessary to strengthen its claim of control over the Strait of Hormuz."

Other Currency Highlights

• Euro rose 0.25% to US$1.1459.
• Sterling gained 0.3% to US$1.3451, on track for a weekly rise of more than 0.7%.
• Australian dollar edged 0.27% higher to US$0.6960.
• New Zealand dollar advanced 0.58% to US$0.5789, heading for a weekly gain of more than 1.4% after the Reserve Bank of New Zealand (RBNZ) hiked rates and signalled further tightening.

Westpac expects the RBNZ to raise rates by 25 basis points in September and December, forecasting the cash rate to peak at 4% in September 2027.

Kelly Eckhold, Westpac's chief economist, cautioned:

"The exact timing of the tightening profile is highly uncertain and even the tightening we forecast at the September 2026 meeting should not be regarded as a done deal."

The dollar was set to end the week little changed, with renewed safe-haven gains offset by diminishing expectations of a rate hike from the Federal Reserve.

— REUTERS