Asia's rich advised to buy yen as Japan's negative rates backfire

A customer hands over 1,000 yen banknotes while making a purchase in Tokyo, Japan.
A customer hands over 1,000 yen banknotes while making a purchase in Tokyo, Japan. PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - Money managers for Asia's wealthy families are favoring the yen as it benefits from the turmoil in global financial markets.

Credit Suisse is advising its private-banking clients to buy the yen against the euro or South Korean won because the Japanese currency remains undervalued versus the US dollar.

Stamford Management, which oversees US$250 million (S$348 million) for Asia's rich, told clients the yen is set to strengthen to 110 against the dollar as soon as the end of this month. Singapore-based Stephen Diggle, who runs Vulpes Investment Management, plans to add to assets in Japan where the family office already owns hotels and part of a nightclub in a ski resort.

The yen has outperformed all 31 other major currencies this year as Japan's current-account surplus makes it attractive for investors seeking a haven. Bank of Japan (BOJ) Governor Haruhiko Kuroda's Jan 29 decision to adopt negative interest rates has failed to rein in the currency's advance.

"All existing drivers still point to more yen strength," said Mr Koon How Heng, senior foreign-exchange strategist at Credit Suisse's private banking and wealth management unit in Singapore. "The BOJ will need to do more to convince the markets about the effectiveness of its negative interest-rate policy."

The yen has appreciated 7 per cent against the dollar this year to 112.32 as of 12.10 pm in Tokyo on Friday (Feb 12). It touched 110.99 on Thursday, the strongest level since Oct 31, 2014, the day the BOJ unexpectedly increased monetary stimulus for the second time during Mr Kuroda's tenure.

That's a drawback for the central bank governor. He needs a weaker yen to help meet his target of boosting Japan's inflation rate to 2 per cent and keep exports competitive.

Stamford Management has briefed some of the families whose wealth it helps to manage about the firm's "bullish stance" on the yen, said its chief executive officer, Mr Jason Wang.

"The adoption of negative interest rates reeks of desperation to me," Mr Wang said. "It's akin to an admission by the BOJ that conventional monetary policy is ineffective in hitting their 2 per cent inflation target."

Credit Suisse predicts that the yen will strengthen to 115 against the euro in 12 months, from 127.03 on Friday. Japan's currency will gain to 11.10 won in 12 months, from 10.75, according to Mr Heng.

In 2013, the yen tumbled 18 per cent to 105.31 per dollar after Mr Kuroda started quantitative and qualitative easing. It fell an additional 12 per cent in 2014 to 119.78 helped by his surprise expansion of the programme. The currency depreciated just 0.4 per cent last year.

The yen's weakness attracted tourists to Japan and boosted occupancy rates at the four hotels that Vulpes owns. The currency's resilience now will be reassuring for investors whose money Mr Diggle is putting into those assets along with his own, said the former hedge-fund manager. The family office owns boutique hotels, a cafe bar, part of a nightclub and a ski chalet in the resort town of Nozawa Onsen in Nagano prefecture, central Japan.

"We are positively disposed to selectively adding to our Japanese hotel portfolio," said Mr Diggle, who made money in 2014 from the dollar's advance against the euro, yen and Australian dollar. "We see Japanese banks being somewhat keener to lend money to property and hospitality businesses and that's a huge positive for an industry starved of credit for two decades."