Fate of kiwi in Japanese hands

The kiwi dollar could start falling in the next couple of months if Japanese investors do not reinvest the cash they get from their New Zealand dollar bonds, currency strategists say.

Some $2 billion worth of uridashi bonds - New Zealand dollar bonds issued to Japanese investors - is due to mature in February and March, and the currency market will be watching closely what the investors decide to do.

If they decide to reinvest the proceeds of the bonds back into more uridashis, this would support the New Zealand dollar and could help it stay around its present levels.

But if they decide to take their funds back to Japan, then the kiwi could fall.

On Thursday, the Government revealed that officials from Treasury and the Reserve Bank had travelled to Japan last month to warn investors there about the risk of investing in the kiwi dollar.

The kiwi opened the local trading session yesterday at 67.86USc after falling from 68.30USc overnight as news of the visit spread to offshore markets. The kiwi closed at 68.08USc.

Bank of New Zealand currency strategist Sue Trinh said the revelation came at "the perfect time" for the Government because of the huge amount of uridashis due to mature in the next two months.

Trinh said most investors were likely to take their money back to Japan rather than reinvesting it due to the probability New Zealand interest rates would not rise any further.

Furthermore, uridashi issuance is likely to dry up and the dollar will fall.

"It looks unlikely the Kiwi dollar will be able to attract significant inflows to offset the maturities," Trinh said.

BNZ expects the kiwi to drop to 67USc by the end of March and 58USc by the end of the year.

However, ANZ senior currency dealer Alex Sinton said he expected most Japanese investors would reinvest the proceeds from their uridashi into more uridashis.

They had got a much better rate of interest on their bonds than they would have in Japan and had also earned a return of between 11 per cent and 20 per cent as the New Zealand dollar had risen against the yen in the past two or three years.