Analysis: Weak yen trend to slow as wary Japan insurers take stock of "Abenomics"

Mon Feb 25, 2013 4:03pm EST
 

By Chikako Mogi

TOKYO (Reuters) - The yen has quickly dived to near three-year lows, but one Japanese sector with serious currency clout has yet to be heard: big insurers who control a combined $2 trillion in assets.

Conventional wisdom holds that a weakening yen and stronger U.S. dollar will spur insurers to buy more foreign assets as they search for higher returns, which would send the Japanese currency into a steeper tailspin.

The yen has fallen as Prime Minister Shinzo Abe kept to his promises of aggressive reflationary fiscal and monetary policies, but insurance companies seem to be in no rush to change their strategy for now, waiting to see if Abe in the end is any more successful than previous leaders in resuscitating the long ailing economy.

Many still remember being burned in 2005 to 2007 when they underpinned a steady rise in the dollar with foreign investment, only to see their profits evaporate as the dollar sank to record lows against the yen over the next five years.

Analysts say their absence from the market will not derail what appears to be an extended period of yen weakness, but it could limit further losses and leave the currency more vulnerable to corrections to the upside if selling pressure abates.

"Markets are still not fully convinced that Abe can push through the most essential of his policy mix, the growth strategy, which requires a painful overhaul of current frameworks that inhibit growth, but for which no roadmap is provided," said Yuuki Sakurai, CEO at Fukoku Capital Management.

Others agree.

"Japan's monetary policy framework is entering uncharted territory and we need to see through what these bold measures are. It's not the time to take sides, but to stay sidelined," said Kazuto Uchida, an executive officer and general manager of the global markets division at the Bank of Tokyo-Mitsubishi UFJ.   Continued...

 
A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. REUTERS/Kim Kyung-Hoon