Massive retail yen redemption not happening

The expected rush back from high-yielding currencies after the Japanese earthquake two weeks ago has failed to materialise. While redemptions are occurring they are nowhere near as severe as those that occurred after Lehman Brothers collapsed in 2008.

  • 25 Mar 2011
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The much-anticipated shift of Japanese retail investors to safe haven currencies—particularly their own—following the country’s earthquake on March 11 does not appear to have happened.

Japanese retail investors place a lot of money into Toshin funds, which allow them to invest in higher-yielding currencies using yen. A major run on the assets in these funds was anticipated, as investors pulled money back to Japan, but 11 days on from the earthquake the total net redemption was just ¥55 billion (US$600 million), according to Nomura data.

Placed into context, this is only 22% of the equivalent figure 11 days after Lehman Brothers collapsed in September 2008, when ¥247 billion was redeemed. Total redemptions from the US bank collapse have been calculated at ¥579 billion from the Toshin market, Nomura calculates.

In addition, there was a fairly large series of retail investments into Toshin funds on Thursday (March 24).

US equity funds managed to lure roughly ¥30 billion (US$350 million) today (March 25). About 80% of this amount was invested into a basket of commodity currencies, in which the Brazilian lira, Australian dollar, and South African rand are equally weighted.

“This result defies the pessimistic view that the national disaster would eliminate Japanese investors’ appetite for risk assets,” said Yunosuke Ikeda, FX strategist at Nomura in a research report.

The yen has been under a lot of examination in the days since the earthquake and resulting tsunami hit. Amid fear of mass risk aversion and a subsequent strengthening yen, the currency reached levels against the dollar not seen since the Second World War, at one point hitting ¥76 to the US dollar.

The Group of Seven rich nations agreed last Friday (March 18) to co-ordinate efforts to sell yen to weaken the yen from its lofty position. The size of intervention so far is estimated to around ¥500 billion-¥600 billon. The currency’s spot rate has stabilised around the ¥80 to the US dollar mark.

Coordinated intervention, as rare as it is, is typically used when a major currency is deemed to be heavily out of line with long-term fundamentals. Previous examples included central banks working in cohesion to support the euro in 2000, and before that to support the value of the US dollar in 1995.

  • 25 Mar 2011

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5 Standard Chartered Bank 5,686.63 26 5.79%

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1 Bank of America Merrill Lynch 929.36 4 8.03%
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