JPY: Japanese investors were net sellers of overseas bonds – RBC CM

The MoF’s weekly capital flows data showed Japanese investors were net sellers of overseas bonds (JPY0.3trn) in the week to last Friday, in contrast to the recent trend of steady net outflows of capital, notes Adam Cole, Research Analyst at RBC Capital Markets.

Key Quotes

“The data are interesting in that they are the first to be wholly post-US election and pick up most of the spike in US bond yields since that event. It is early to draw strong conclusions, but so far these data do not support the widely-held view that JPY weakness since the US election (and BoJ yield target) reflects Japanese investors rushing into foreign bond markets. More likely, JPY weakness reflects the reestablishment of leveraged short JPY positions. Our positioning measure for USD/JPY, based on the correlation between the spot rate and reported returns of FX managers, is high but not yet back to the peak seen in the early months of the Abe/Kuroda regime.” 

“So this not necessarily a constraint on further JPY losses in the near term. October CPI (excluding fresh food) came in at -0.4% y/y (consensus -0.4%), which is unlikely to have any implications for domestic policy.”