FOREX-Yen rises as Japan lures pension funds into domestic assets

Japan plans to encourage pension funds to invest more in domestic assets, potentially offering support to the yen and boosting the country's financial markets.

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 more support to the battered currency than intervention.

Japanese Finance Minister Satsuki Katayama said the government was 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 from the weaker side of 162 per dollar to an ‌intraday peak of 161.285. It was last 0.4% stronger at 161.70 per dollar.

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

BROAD-BASED YEN RALLY The rally was broad-based, with the euro and British pound down around 0.3% ⁠against the yen.

Before Friday's news, the yen had been languishing near 40-year lows, keeping traders on guard for potential intervention by Japanese authorities. The ​yen's rise on Friday in turn pushed the dollar lower, as it fell 0.1% against a basket of ⁠currencies to 100.81. The world's most traded currency was set to end the week little changed.

The euro rose 0.1% to $1.144, while sterling was also 0.1% higher ⁠at $1.343. The ​Australian dollar rose very slightly to $0.695.

WAR CLOUDS SENTIMENT Investors for now seemed to brush off flaring tensions in the Middle East, but the implosion of a ceasefire between the U.S. and Iran has once again cast a cloud over ⁠the outlook for energy prices and global inflation.

"The spectre of war still hangs over sentiment," said Thierry Wizman, global FX and ⁠rates strategist at Macquarie Group. "The ⁠question confronting traders is whether Iran is willing to return to large-scale kinetic war with the U.S. and its allies if necessary to strengthen its claim of control over the Strait of ‌Hormuz."