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Former Japanese Ministry of Finance official says yen may drop as government pension fund increases foreign holdings

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(Credit: Reuters) People line up to sell U.S. dollars and Japanese yen at money changer in Manila November 21, 2008.
Japanese Yen and US Dollar
December 3
1:35 AM 2013

Eisuke Sakakibara, a former official of the Ministry of Finance of Japan, said the yen may plunge as the government pension fund will look for more overseas investments. In an interview with Bloomberg, Sakakibara said Japan's Government Pension Investment Fund or GPIF should heed the proposal of an expert panel to increase its foreign holdings from 23% to 35%. He said this will cause the yen to dip from JPY 102 to JPY 108 to the dollar as they add to the outflows with the strengthening US economy bolstering chances that the Federal Reserve will start paring its stimulus. Last quarter, Bloomberg reported that GPIF's assets increased to a record JPY 124 trillion or USD 1.2 trillion.

Sakakibara told Bloomberg, "GPIF has huge funds, so that it's impact on the economy is quite significant." He said that the proposed amendments to the holdings of the pension fund would push the equities prices for some time and contribute to the currency's depreciation. "So at least this situation would be sustainable for a year or two," he added.

In the past year, the yen had plunged 19% as the Japanese government took steps to break the deflationary spiral that had gripped the country for over a decade. The Japanese increased spending and instructed the central bank to carry out monetary easing to bring the country out of deflation, Bloomberg reported.

Sakakibara said the yen is weakened with the prospect that the GPIF will acquire more assets abroad as this will also help fuel Japanese investments overseas. The yen last traded at JPY 108 to the dollar five years ago.

The currency's weakness is also brought about by expectations that the Federal Reserve will start cutting on its USD 85 billion monthly bond purchases. Sakakibara said, "The yen's range has shifted because of the strong U.S. economy, and the possibility of tapering some time early next year, or even as early as December this year." 

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