The Surprising Strength of the Japanese Yen

Carlos Ghosn, Nissan Motor’s chief executive officer, said on Oct. 7 that Japan needs to curb gains in its currency or tempt companies like his to relocate factories overseas. Two weeks later, the yen powered to a new postwar record of 75.8 per dollar as Europe’s debt crisis drove demand for so-called safe haven assets.

Japan’s government bonds and currency typically gain in times of financial strife. The country’s August current account surplus of ¥408 billion ($5.4 billion) and deep domestic savings pool mean it doesn’t need the foreign capital that propped up Greece and Portugal before those nations sought bailouts. While Japan’s bonds pay the lowest rates in the world, when translated into dollars they become world beaters. For those who used dollars to buy Japanese government bonds (JGBs) total returns have reached 8.8 percent this year, passing the average 7.2 percent dollar-based returns on global sovereign debt, Bank of America Merrill Lynch data show.