The New Zealand dollar hit a 5 year low of 54 US cents overnight as the Japanese Yen continued to strengthen. Japanese investors are repatriating cash in response to the global financial crisis and signs of a growing problems at home. Over the weekend Japan's government announced a major new stimulus package and the Nikkei fell to a 26 year low. Japan's biggest bank, Mitsubishi UFJ Financial Group (MUFG), announced plans to raise US$10.7 billion of fresh capital to rebuild its balance sheet. Just weeks ago it invested US$10 billion to buy a 21% stake in Morgan Stanley.
Also over the weekend, bankrupt Icelandic bank Kaupthing defaulted on its Samurai bonds, which are yen denominated bonds issued to Japanese investors. The default of Lehman Bros on its Samurai bonds earlier this month is also likely to cool demand for foreign bonds by Japanese investors. 'There are NZ$7.3 billion worth of Uridashi bonds set to mature before the end of the year, which is likely to create even more downward pressure on the New Zealand dollar. The Uridashi Tsunami appears to be breaking with a vengeance. The New Zealand dollar has fallen from almost 80 yen to 50 yen inside 3 months. This is all great news for exporters, although commodity prices have fallen sharply in recent weeks, reducing much of the windfall. The wrinkle however is that the New Zealand dollar has been strong against an even weaker Australian dollar in recent weeks. Australia is New Zealand's largest trading partner, meaning the Trade Weighted Index has not fallen as hard as the Kiwi against the US dollar and Yen. The biggest losers will be importers and retailers in particular, who are being slammed on both sides by higher import costs and lower consumer demand. Retailers such as Mitre 10, Pumpkin Patch, Hallensteins Glassons, The Warehouse, Harvey Norman, Noel Leeming, Bond and Bond and Farmers will struggle even more. Your thoughts?