UBS Group Wealth Management stated that the "red line" for the yen may be crossed in the next economic cycle, as the wealthiest families in Japan still have lingering concerns about the market crash in the early 1990s, an event that set Japan back decades.
Despite the market turning optimistic about the yen due to trade conflicts, there is one key group that is not yet ready to be bullish: Japan's wealthiest class.
Daiju Aoki, Regional Chief Investment Officer at UBS Group, stated that this is because the wealthiest families in Japan are still haunted by the market crash in the early 1990s. They currently hold a large amount of Cash / Money Market, which is depreciating daily due to inflation.
In an interview at the Tokyo office, Aoki stated, "Many wealthy clients are very, very concerned about the depreciation of the yen, and due to economic weakness and insufficient industrial investment, a level of 180 or even 200 yen to 1 dollar could become a reality." Although Trump's erratic trade policy statements have rendered the short-term trend of the yen unclear, these levels may "appear in the next economic cycle."
Recently, the yen has weakened against the dollar, reversing the upward trend following Trump's inauguration. Global investors are weighing the tumultuous tariff negotiations and the uncertainty of how Trump's policies will reshape global trade. On Monday, as the U.S. and China temporarily lowered reciprocal tariffs, the yen plunged more than 2% in a single day, approaching the 150 mark, prompting short covering in dollars.
If the yen falls to 180 or even close to 200 against the dollar, it would return to historical lows in financial textbooks — the last time the yen touched 200 to the dollar was in 1986, one year after the Plaza Accord was signed. That agreement aimed to weaken the exchange rates of the dollar against major currencies like the yen. A stronger yen has burdened Japan's export-dependent economy, which had enacted a series of stimulus measures that fueled a market bubble. The bubble burst around 1990, causing the Japanese stock market to retreat for decades.
Although the stock market's benchmark Index has returned to levels prior to the bubble burst, and the yen has also fallen to lows of that era, the structural changes in Japan's economy since the bubble era remain a core concern for the wealthy class.
Japan was once considered an economic superpower, with unstoppable exports of electronics and Autos, but now it faces a shrinking population, while most innovations have occurred in the U.S. and China. Since the mid-1990s, Japan has experienced long-term domestic inflation that was low or even non-existent, but it is now starting to heat up, while inflation in other developed economies is cooling down.
Aoki stated, "Wealthy individuals are very skeptical about Japan's economy," noting that Japan lacks innovation and population growth, which is "insufficient to support the entire Japanese economy."
This has led some clients to gradually increase their overseas Assets allocation, and Gold may also become a choice for hedging. However, Aoki pointed out that "anxiety about the current situation" may imply that Japanese investors still consider holding Cash / Money Market to be safer.
According to a report from Nomura Research Institute, wealthy families in Japan typically hold fewer financial Assets than their overseas counterparts. Among high-net-worth households with at least 0.1 billion yen (approximately 0.685 million USD), about 70% hold Assets of less than 0.5 billion yen. In contrast, Koji Noguchi from Nomura pointed out in a report in December 2023 that 57% of the Global rich hold more than 5 million dollars in financial Assets.
If the Exchange Rates of the yen against the dollar drop from around 146 this week to 180, the depreciation would need to exceed 20%. Looking back at the situation last summer when the yen fell below 160 for two consecutive weeks, the weakness of the yen did not spark interest from foreign investors and companies.
"The level of 160 is insufficient to attract foreign capital into the Japanese market," Aoki stated, adding, "Therefore, the yen may continue to weaken until Japanese companies return or foreign investment flows into Japan's Infrastructure."
