×

Buying the yen to protect against a trade war is ‘pretty peculiar,’ wealth manager says

  • On Monday morning, the yen was close to a 17-month high against the dollar following the U.S. decision last week to impose new tariffs on China worth $60 billion.
  • Japan could suffer from a deterioration in the trade ties between the U.S. and China, given its proximity to the latter.

Choosing to buy the Japanese yen as protection against a potential trade war is "pretty peculiar," one wealth manager told CNBC Monday.

The Japanese currency has been mostly on the rise against the U.S. dollar as investors look for a safe haven amid fears of a global trade war. On Monday morning, the yen was close to a 17-month high against the dollar following the U.S. decision last week to impose new tariffs on China worth $60 billion.

"Buying the yen because of a trade war in which Japan was going to be hit pretty badly, and Japan hasn't been exempted from the steel tariffs by the way, that seems to me pretty peculiar," Giles Keating, managing director at wealth manager Werthstein Institute, told CNBC.

Prior to imposing new tariffs on China for allegedly stealing intellectual property rights, the U.S. announced tariffs on steel and aluminum products. The EU managed to get a temporary exemption from the latter tariffs last week, but Japan didn't.

Japan US currencies
Toru Hanai | Reuters

With fewer imports to the U.S., the Japanese economy could be hit and the currency could depreciate. More importantly, Japan could suffer from a deterioration in the trade ties between the U.S. and China, given its proximity to the latter.

According to Tobias Harris, the vice president of advisory firm Teneo, the economic impact of the metal tariffs should be small on Japan, but they could signal something much more important.

"The direct economic impact on Japanese producers may be limited — only 2 percent of Japan's steel exports go to the U.S. — but Tokyo's failure to convince Washington to spare it from the new measures could be a sign of a more contentious turn in the bilateral relationship," he said.

"After a year of broad discussions in the U.S.-Japan Bilateral Economic Dialogue … The U.S. administration appears to be increasingly determined to press Japan for concessions to open its market and reduce its bilateral trade surplus with the U.S.," Harris added in a note Friday.

Data from the Japanese government showed last month that the country's trade surplus with the United States narrowed in January, dropped 12.3 percent from a year ago to 349.57 billion Japanese yen ($3.32 billion). Japan has announced that it would look to be exempted from the metal tariffs, though they came into effect on Friday.