Yen Strength Continues as Buyer is Clear - BBH
Research Team at BBH, notes that there has been a surge in Japanese
portfolio capital outflows and it appears that Japanese investors were
not repatriating their foreign holdings as the safe have hypothesis
would suggest, but buying prodigious (record) amounts of foreign bonds
in March.
Key Quotes
“Japanese
investors were also consistent, even if less dramatic, buyers of foreign
shares. There are some seasonal patterns at the start of the new
fiscal year (April 1) that may be distorting the recent weekly data,
which is why we note the larger pattern, which does not suggest the yen
has been bought as a safe haven.
We suspect that flows that are
less transparent, like repatriation of foreign earnings by Japanese or
unwinding of hedges by foreign investors liquidating Japanese equities
that have fallen in price, or Japan institutional investors hedging
their currency risk (buying yen) played a role earlier this month.
Using
the futures market as a proxy for trend-following and momentum
speculators, a buyer of yen is clear. As of around 10 days ago,
speculators in the futures had amassed a record long net and gross yen
position. However, the flows in the futures market seem to small
compared with the spot market to be a key driver. That said, we
recognize this as a dynamic process and can feed it on itself, with
money management considerations driving decision-making, allowing a move
to take on a life on of its own, as it were.
Japanese markets
were closed today, but the yen's strength has continued. The dollar
traded below JPY107 for the first time since October 2014. The
JPY106.60 area may be the next technical target. The market may draw
more cautious if the JPY105 level is approached as some observers tout
intervention there, though we suspect that such claims mistakenly see
BOJ action (that would be ordered by the MOF) as defending a fixed
level.”
