Yen loses haven role as overseas investment shifts

BLOOMBERG

The super-easy policy of the Bank of Japan (BOJ) has eaten into the yen’s status as a traditional haven for at least the last two years, but the currency reaction to the nation’s New Year earthquake suggests an even deeper issue for the once-favored safe asset.
In past years the yen tended to strengthen following news of wars or catastrophes, as was the case following the quake and tsunami in 2011, because of speculation that Japanese investors would sell overseas assets and repatriate funds. The currency jumped almost 9% against the dollar over seven days following that deadly event yet has slid about 3% since a 7.6-magnitude
temblor shook areas centered around Japan’s Noto Peninsula on January 1.
A key difference now is the focus of Japanese companies on expanding their operations abroad, which has seen foreign direct investment outweigh overseas investment in financial instruments like stocks and bonds since 2014. “Financial assets are liquid and can be sold for repatriation, but companies won’t close their factories overseas” when a disaster strikes in Japan, said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Tokyo.
FDI made up 57% of Japan’s net international investment position in the third quarter, up from 20% at the end of 2010, according to data from the International Monetary Fund compiled by Bloomberg. During this period, the share of portfolio investment fell to 22% from 46%. The yen was down 0.2% at 145.14 versus the dollar in Tokyo on Monday.