[Super Enjeo]① Have International Speculators Joined... What Is the Structural Background?

Increase in Japanese Seohak Ants and Yen Weakness
Hedge Funds Increasing Bets on Yen Weakness Also Impact
Super Yen Weakness Boosts Yen Carry Trade Funds

As the value of the Japanese yen has plummeted to an all-time low, the number of tourists visiting Japan is increasing. Travelers at Seoul Gimpo International Airport are waiting to check their luggage. Photo by Jin-Hyung Kang aymsdream@

According to the Nihon Keizai Shimbun, the import of U.S. beef into Japan from January to April this year decreased by 20% compared to the previous year. This is because the rapid depreciation of the yen and a reduction in local production have made it difficult for Japanese merchants to purchase U.S. beef.

In the past year, the wholesale price of European pork distributed in Japan has surged by 40%. The price of Norwegian salmon has risen by 40% in three years, leading many merchants to resort to lower-quality substitutes. The yen's weakness has caused import prices across the board in Japan to soar, placing a heavy burden on the public.

Decline in Yen Value as Japanese Overseas Investment Increases

The biggest reason for the yen's value falling to historic lows is the strength of the U.S. dollar, but there are various structural backgrounds as well.

One of the prominent reasons is the increase in overseas investments by Japanese people. When Japanese investors buy foreign stocks, they sell yen and buy dollars, which causes the yen to show a structural weakness.

In Japan, investing in overseas securities has become a trend among individuals and institutional investors, accelerating the decline in the yen's value. Similarly, in Korea, the increase of "Seohak Gaemi" (Korean investors investing in U.S. stocks) has led to a drop in the won's value, and a similar phenomenon is occurring in Japan.

Especially from this year, overseas investment has increased significantly due to the expanded benefits of the new Small Investment Tax Exemption System (New NISA). NISA is a system that exempts taxes on profits generated from stock trading. It is similar to Korea's Individual Savings Account (ISA), but the tax exemption benefits are greater.

From January this year, the annual tax-exempt investment limit of NISA increased threefold from 1.2 million yen (10.5 million KRW) to 3.6 million yen (31.4 million KRW), and the cumulative limit rose from 6 million yen (52.3 million KRW) to 18 million yen (157 million KRW). The tax-exempt period was also extended indefinitely.

Thanks to this, the number of new New NISA account openings in the first quarter of this year increased 3.2 times compared to the previous year, and investments grew 2.8 times. The net purchase amount of overseas stocks and funds by Japanese investment trust management companies in the first half of this year reached a record high of 6.1639 trillion yen (approximately 53 trillion KRW).

Kim Chaeyoon, chief researcher of the Japan stock market investment information department at NH Investment & Securities, explained, "Currently, about 70% of new investors in Japan seem to be investing overseas," adding, "With the increased benefits of New NISA, overseas investment has grown mainly among the younger generation."

Hedge Fund Yen Attacks Also a Factor in Yen Weakness

Another background to the yen's weakness is the yen attacks by speculative forces such as hedge funds. As the expected timing of the U.S. interest rate cuts has been pushed back, global hedge funds betting on yen weakness have increased.

According to Bloomberg News, global hedge funds have been continuously betting on yen weakness since the beginning of this year. Hedge funds predicted that the Bank of Japan (BOJ) would not actively raise interest rates and expanded call option contracts betting on the yen-dollar exchange rate rising in the second quarter. The number of call option contracts betting on yen depreciation has more than doubled compared to last year. As a result, the yen-dollar exchange rate exceeded 160 yen in the second quarter, and although the BOJ intervened several times in the foreign exchange market by selling dollars to block hedge fund attacks, the yen-dollar exchange rate remains at a high level.

Japanese yen displayed at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Chief researcher Kim explained, "In reality, the BOJ has limited means to respond to yen depreciation," and "Even when market interventions occur, their effects do not last long," indicating that hedge fund yen attacks are fully possible.

The significant increase in 'yen carry trade' funds, where investors borrow yen at low interest rates, convert it to dollars, and invest in dollar assets, is also a factor in the yen's value decline. According to the BOJ, funds remitted by foreign banks' Japan branches to their headquarters last year reached the highest level in 15 years. This is interpreted as an increase in funds borrowing yen amid the historic yen depreciation to invest in dollar assets.

Daisuke Karakama, chief economist at Mizuho Bank Japan, said, "Yen carry trade means selling yen and buying dollars due to interest rate differentials, and it is one of the main causes of the yen depreciation phenomenon." He emphasized, "Along with yen carry trade, the U.S.-Japan interest rate gap and large trade deficits have also influenced the yen's depreciation."