MASAYOSHI Son’s swift £24.3bn swoop on the British chip designer Arm Holdings two weeks ago was at least partly driven by the 25pc discount on sterling, enhancing the UK’s appeal for bargain hunters.

Today the yen remains stubbornly strong, even as analysts assign a high probability to much more aggressive easing from the Bank of Japan when officials meet at the end of this week.

The consensus in the market is for more asset purchases and even more negative interest rates — both of which are meant to bring the currency down — in a move that would ease pressure on the country’s exporters. But neither are likely to have a lasting impact. Investors, particularly in Japan, are no longer dancing to the central banks’ tune.

The roughly 12pc appreciation of the yen since the end of January — when Haruhiko Kuroda, BoJ governor, took the first step into negative rates — was one of several unexpected consequences of the policy. While the yen has weakened in July, many observers believe this year’s trend of appreciation remains intact

The roughly 12pc appreciation of the yen since the end of January — when Haruhiko Kuroda, BoJ governor, took the first step into negative rates — was one of several unexpected consequences of the policy. While the yen has weakened in July, many observers believe this year’s trend of appreciation remains intact.

Japanese institutions are being urged to invest offshore to help put downward pressure on their home currency. This month saw the largest ever one-week purchase of foreign bonds by Japanese investors — of JY2.5tn.

A large part of the reason the MSCI Emerging Markets index is up 11pc since its May trough, and EM credit has advanced 13pc this year, is down to Japanese investors.

“The large decline in emerging market bond yields suggests some inflow from Japan to EM is likely,” note Morgan Stanley’s EM strategy analysts. “Emerging markets have enjoyed a reprieve this year with the Fed on hold, and additional monetary easing likely coming from the ECB, BoJ and BoE,” economists at JPMorgan concur.

The strength of the yen is also one of the explanations for why the depreciation of the Chinese renminbi — cause of so much global unease in January and last August — is not giving rise to more angst now. In fact, since the end of May, the renminbi has weakened 3.5pc against the dollar, far more than in August.

“The renminbi is reacting to volatility, it is not causing it,” says Haibin Zhu, chief China economist at JPMorgan. Of course, the yen doesn’t fully explain investors’ more relaxed attitude towards a weaker renminbi.

The Chinese government has become more effective in enforcing capital controls, even while many Chinese try to thwart their efforts. There are still tales of villages pooling resources to take advantage of quotas that allow every individual to take the equivalent of $50,000 out of the country. False invoicing remains rampant, while the latest twist involves fake lawsuits in which an aggrieved party offshore gets huge ‘damages’ from a mainland entity.

Moreover, mainland regulators have made progress in ensuring the relative stability of their foreign exchange regime. The People’s Bank of China has become more transparent in how it manages the fix. JPMorgan estimates that the largest part of corporate repaying of dollar debt has already occurred, removing another source of downward pressure on the renminbi and helping to break the nexus between the dollar and the Chinese currency.

Recent data have also been supportive. In June, foreign exchange reserves were up $13bn, while China’s second-quarter gross domestic product was benign, with factory output, exports and retail sales all better than expected.

Figures suggest the fear of China as the big macro risk in the world is, at least for now, diminishing. Indeed, the macro risk in the world today is far more likely to emanate from the developed world than from the emerging one. “For the first time since 2012, growth is decelerating in DM while it accelerates in EM,” Morgan Stanley says.

That is true of financial risk too. Japan’s household savers, who earn nothing on Japanese assets but fear to park their money abroad lest they lose on the exchange rate what they gain in yield, are among the biggest victims of monetary policies. They are no longer alone, however.

As other developed market central banks venture deeper into financial repression, savers and pension funds in the developed world increasingly share their plight.

henny.sender@ft.com

Published in Dawn, Business & Finance weekly, August 1st, 2016