The end of negative rates in Japan was not likely to boost the yen. The interest rate differential that separates Japan from the rest of the world remains significant, and the Japanese currency continues to be overlooked by investors. And when it attracts them, it is to finance carry trades, investors borrowing in yen at reduced interest rates and immediately reselling them to benefit other more remunerative currencies, such as the US dollar.
For now, the Japanese authorities are content to intervene verbally. They point to speculation around their currency and stand ready to intervene in the markets to help the yen if it weakens too much. It wouldn’t be the first time. In 2022, Tokyo did the same to compensate that, faced with the prospect of rate hikes in the West, the Bank of Japan opted for an unchanged monetary policy.
As necessary, the undervalued yen is no exception to Japanese exporters, who benefit from increased competitiveness. The Tokyo Stock Exchange is taking advantage of this and has reported excellent performances recently.
We continue to invest in it as part of our diversified portfolios. Sooner or later, the interest rate differential separating Japan from the rest of the world will be reduced, at least partly, which should boost the Japanese currency. At this stage, however, it is highly undervalued, making the country’s financial assets inexpensive. As a result, we invest in the Tokyo Stock Exchange and the Japanese bond market.
