2 Jul 2013
Flash: Strong Japanese data equates to a weaker Yen – BMO
FXstreet.com (London) - Stephen Gallo European Head of FX Strategy at BMO Financial Group explains that the idea that we should sell the JPY on better Japanese data is in part related to the pre-crisis style of capital flows.
He explains this is whereby surfeit savings and excess capital in Japan on the back of stronger and stronger exports (and a weak JPY) triggered Japanese acquisitions of foreign portfolio assets. Hence, he said, why strong Japanese data yields a weaker JPY, rising outflows and a rationale for a somewhat positive correlation between global bond yields and equities. It is probably true that some of the recent net disposals of foreign assets by Japanese investors reflect a desire to “lock-in” profits in view of the weaker JPY and maintain a stable degree of foreign exposure, but he thinks the commitment to low rates outside of Japan, underlying bond market volatility and Japan’s ageing population make USD/JPY a less compelling bet in terms of aggressive JPY downside.
He explains this is whereby surfeit savings and excess capital in Japan on the back of stronger and stronger exports (and a weak JPY) triggered Japanese acquisitions of foreign portfolio assets. Hence, he said, why strong Japanese data yields a weaker JPY, rising outflows and a rationale for a somewhat positive correlation between global bond yields and equities. It is probably true that some of the recent net disposals of foreign assets by Japanese investors reflect a desire to “lock-in” profits in view of the weaker JPY and maintain a stable degree of foreign exposure, but he thinks the commitment to low rates outside of Japan, underlying bond market volatility and Japan’s ageing population make USD/JPY a less compelling bet in terms of aggressive JPY downside.