Yen Intervention Boosts Overseas Asset Buying Amid Rising Yield Differentials

The Japanese yen intervention had a positive impact on overseas asset buying, according to recent data from the Ministry of Finance. In the two weeks ended August 15, Japanese investors net bought more than 5 trillion yen of foreign equities and long-term bonds, a significant increase from the preceding two weeks where they sold over 300 billion yen worth of assets.

The intervention, which took place last month, lifted the yen's value against the dollar, making it easier for investors to purchase overseas assets. Jesper Koll, expert director at Monex Group, said that the intervention 'turbo charged' the carry trade for fundamental and long-term investors.

Japanese retail and institutional investors used the stronger yen to establish positions in non-yen assets, particularly higher-yielding U.S. bills and bonds, according to Koll. However, Francis Tan, Asia chief strategist at Indosuez Wealth Management, warned that the intervention only addressed a 'symptom' rather than the underlying structural forces driving low Japanese borrowing costs and wide rate gaps.

The short-lived gains in the yen's value have increased focus on the Bank of Japan's ability to narrow yield differentials with the United States. As of Thursday, the U.S.-Japan 10-year yield spread was roughly 1.8 percentage points.