Published February 27, 2009

Yen slides, BoJ being nudged to buy ETFs

By ANTHONY ROWLEY
IN TOKYO

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THE yen continued to slide yesterday to a three-month low against the US dollar reflecting the 'sell-Japan' mood that has begun to take hold among Japanese and foreign investors.

The yen sank to 97.98 against the US dollar in Tokyo yesterday. It also continued its slide against the euro, the pound, the Australian dollar and other currencies.

Meanwhile, Japanese media speculated that the Bank of Japan could be pushed by the government to buy exchange traded funds (ETFs) in order to lift the Tokyo stock market above its current quarter-century low.

Reports suggested that the government would guarantee the central bank against any losses it might make by such an unorthodox move. But BoJ Policy Board member and former banker Tadao Noda warned that 'too much intervention could backfire', and that BoJ purchases of financial assets were already 'crippling' the function of financial markets.

Foreign investors have become major net sellers of Japanese equities, figures released yesterday showed. They sold a net 451 billion yen (S$7.1 billion) worth of stocks last week. Meanwhile, Japanese domestic investors have become net buyers of foreign stocks and bonds.

This portfolio capital flight from Japan, along with the fact that the Japanese trade and current account have moved into deficit with collapsing exports, is exerting strong downward pressure on the yen, analysts noted. The yen sank to 97.98 against the US dollar in Tokyo yesterday, where it was more than 10 per cent down from the 13-year high of 87.10 that it hit last month.

The yen also continued its slide against the euro, the pound, the Australian dollar and other currencies.

'I am no longer bullish on the yen compared to before,' chief foreign exchange strategist Tohru Sasaki at JPMorgan Chase Bank in Tokyo told The Business Times. In the short term the yen could fall back to around 100 to the dollar, added Mr Sasaki, a former foreign exchange dealer for the Bank of Japan.

He cited the deterioration in Japan's trade balance as one factor behind the slide. Data issued on Wednesday showed that Japan's exports crashed by nearly 46 per cent in January compared with their level a year earlier while Japan suffered a trade deficit of 953 billion yen. But Mr Sasaki added that he expected to see the yen strengthen again - perhaps to 95, and even 92, to the dollar - after the end of the Japanese financial year on March 31. Other analysts agreed, saying that the recent strengthening of the US dollar versus the yen was due to technical factors rather than fundamentals.

Investor sentiment has turned firmly against Japanese stocks for the time being, however, and yesterday the benchmark Nikkei 225 stock average lost a fractional 3.3 points to 7,456.93 - where it remains close to a 26-year low.

The BoJ has announced a scheme to buy up to one trillion yen of stocks from Japanese banks and the government has also proposed a plan to buy up to 20 trillion yen of stocks from Japanese bank portfolios to help ease the capital strains that they face.

This proposal has become a victim of political gridlock in parliament, however. Prime Minister Taro Aso's government is trying a new tactic now to support collapsing share prices by having the BoJ purchase exchange trading funds tracking the Tokyo market, media reports said.