Fed up Japanese dump yen for Aussie, kiwi dollars
Mon Apr 4, 2005 04:43 AM ET
By David McMahon
TOKYO, April 4 (Reuters) - For more and more Japanese, Australia is no longer just a cheap place to play golf and lie on the beach.
Fed up with zero interest rates at home, Japanese households -- the world's biggest savers -- have steadily marched into their banks to swap yen for other currencies such as the Aussie dollar offering much higher deposit returns.
Domestic and foreign banks in Tokyo say demand is just as strong for the New Zealand dollar, known as the kiwi. Some Japanese savers have even reached for exotic currencies like the South African rand.
"Most of our customers are basically yield chasers," said Ken Torii, head of personal banking in Japan for Australia and New Zealand Banking Group (ANZ.AX: Quote, Profile, Research) , Australia's third-largest bank.
"They are very much frustrated and disappointed with the low returns on yen, and they look at the higher rates on Australian and New Zealand dollars and just go for it."
Banks have plastered newspapers with double-page ads prodding customers to make the currency switch, with some offering one-month kiwi rates as high as 25 percent as a gimmick to get people to sign up.
The end of the government's blanket guarantee on ordinary bank deposits as of April 1 has also prompted Japanese investors to stow some of their extra, unprotected savings in new foreign-currency accounts.
Foreign-currency deposits now make up around 5 to 10 percent of the $30 billion of assets under management at Japan's Shinsei Bank, quadrupling in the past two years, said Julius Dias, a general manager at the bank.
About 75 percent is in the U.S. dollar, with 10 percent each in Aussie and kiwi dollars.
Of course, foreign-currency deposits come with risks. Currencies can be volatile, with the Australian dollar jumping more than 21 percent against the yen in 2003 but having fallen 18.4 percent in 1998.
More important for many Japanese savers than the day-to-day changes in currency values, though, is simply earning higher interest rates on their massive savings over a few years or longer. Short-term rates in Japan are expected to stay near zero until late 2006 or possibly 2007.
AWASH IN SAVINGS
A lot of the banks' customers are older Japanese, many of whom still have large savings stashed at home in cash due to lingering worries about Japan's once-shaky financial system.
Japanese savers still have 25 trillion yen ($232 billion) of cash hoarded at home, in many cases literally under the mattress, estimated Hideo Kumano, senior economist at Dai-ichi Life Research Institute.
Total household bank deposits in Japan stand at a colossal 738 trillion yen, or $6.9 trillion -- roughly 1.5 times the size of Japan's economy, the world's second-largest.
With interest rates at zero, Japan's savers earn almost nothing on all that cash. For a typical one-year term deposit at a Japanese bank, it would take investors 2,400 years to double their money. At a rate of 6 percent, it would take 12 years.
Cash rates stand at 5.5 percent in Australia, 6.75 percent in New Zealand and 2.75 percent in the United States. The South African rand carries a juicy rate of 7.5 percent.
Handsome gains in those high-yielding currencies have boosted deposit returns. The Aussie dollar (AUDJPY=R: Quote, Profile, Research) has risen around 35 percent and the kiwi (NZDJPY=R: Quote, Profile, Research) has shot up 50 percent versus the yen in the past four years.
"I like to put part of my spare cash in high-yielding currencies like the Aussie dollar," said Yoko Taniai, a 29-year-old office worker who buys Australian dollars whenever her semiannual bonus comes through.
ANZ's Torii said the average Japanese customer at his bank had 3 to 4 million yen in foreign-currency deposits, mainly in the Aussie and New Zealand dollars.
HONEYMOON OVER?
Japan's households had 5.9 trillion yen in foreign-currency deposits at the end of December, five times the level a decade ago, data from the Bank of Japan shows.
Australian banks in Tokyo said some of their customers were saving to buy retirement or holiday homes in that country, where the summers are hot and sunny during the Japanese winter.
Many Japanese have an affinity with the region already. Oceania, including Australia and New Zealand, was the second most popular Japanese honeymoon destination behind Hawaii in the last three months of 2004, according to travel agency JTB.
But the honeymoon could soon be over.
Retail bankers said that as Aussie and New Zealand rates showed signs of peaking out and their currencies faltered, many Japanese investors may shift more funds into the U.S. dollar, with U.S. rates expected to rise further.
The South African rand is also luring savers, they said.
"They're not looking at the short term, they're looking at three to five years," said Shinsei's Dias. ($1=107.71 yen)
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