Fed-up Japanese investors want

euro to shape up

Major Japanese investors are growing tired of the euro as the 14-month-old currency shows few signs of overcoming its teething troubles, analysts say.

After initially welcoming the single currency’s advent with massive investment in euro holdings, big Japanese funds are perplexed by its persistent weakness and are reducing their exposure.

“I think they are not confident anymore, they are disappointed, and very confused,” said Kenneth Landon, senior currency strategist at Deutsche Bank in Tokyo.

The euro, launched in January last year, fell 15 per cent through parity against the dollar and on February 28 plumbed a new low of 0.9390 dollars in Tokyo trade.

The diverging performance of the United States and euro-zone economies is the core reason for its sustained weakness, but currency traders say a lack of support for the unit from the European Central Bank (ECB) has not helped.

That has contributed to furrowed brows among the big Japanese investors, including pension funds which sit on some of the largest savings pools in the world of more than 1.2 trillion yen (11.3 billion dollars).

Technical factors are also at play as Japanese investors repatriate funds back into yen for the financial year’s close on March 31.

But others said the euro’s affliction in Japanese eyes went deeper.

“The life assurers sold quite a lot in recent sessions. They remain sellers on the euro, at least in the short run,” said the foreign exchange manager of a major European bank.

With the US economy continuing its record-setting growth, it made more sense for investors to “put their money in a truly capitalist market rather than a socialist region like Europe where the profits are shared among the workers,” said the manager, who declined to be named.

“The Japanese are obliged to abandon the euro for fear of losing too much,” he said, noting their early influx to diversify their holdings when the currency was bom.

The euro continued to account for only around a quarter of currency trading in a Tokyo market dominated by dollar-yen business, adding to its lack of appeal, the manager added.

The euro’s less publicised weakness against the yen has been causing consternation among some major Japanese investors, who feared their foreign exchange earnings would be dented when they closed their books on March 31.

That fear was behind the Bank of Japan’s intervention, which briefly drove the yen down against both the dollar and euro, dealers said at the time.

Japan’s institutional investors “don’t want to panic at this point,” said Deutsche Bank’s Landon, with dealers noting the euro’s falls had been limited as Japanese funds could not overexpose themselves to dollar holdings.

“If they start to sell, the yen will go down too quickly. Last year they were net sellers of US bonds and bought quite a bit of euro and other bonds, that’s why they’re concerned now,” Landon commented.

The “intervention has given them some breathing room but the problem is really of the euro. Unless the ECB will support the euro, it will be difficult for other central banks to intervene.”

“Middle-sized lifers (life assurers) are interested in selling at 103/104 yen for one euro,” said Mitsuru Sahara, vice president of foreign-exchange trading at Sanwa Bank.

“But we are still far from that level, because they invested too much a year ago,” he said.

Citibank trader Kengo Kara added there was “some buying interest” in the euro from Japanese funds which stayed away last year and now wanted it on the cheap.

But he added: “Others are taking a wait and-see stance.” ■