Forex Investment and Currency Trading

The strength of the Yen appears to be having an effect on domestic equity markets. The Nikkei and Topix are among only a handful of markets that are down over the past 4 to 6 weeks in absolute terms. Japanese equity markets have also underperformed what one would predict based on their historical macro drivers (even after considering FX effects).
Much of the recent index damage has been focused in financials, where worries about Financial Services Minister Kamei’s proposals of a debt moratorium and additional capital raisings continue to weigh on the sector. But the Yen strength has been a key [...]

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Investors are paying a lot of attention to a WSJ article in which Hirohisa Fujii, a candidate to become Japan’s finance minister, is quoted as saying “… I think it’s a wrong policy for a nation to just weaken its currency to boost its exports …There could be cases where some steps would be taken when there are abnormal, speculative money flows. But in principle, we must not take such action.” Some interpret the comments as suggesting that the DPJ will pursue a strong yen policy. However, much of the discussion seems to abstract from whether a strong yen is [...]

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The analysis of the seasonality of the Japanese yen (JPY) is with respect to the assumption that Japanese firms tend to repatriate foreign profits ahead of fiscal year-end on 31 March. The JPY tends to strengthen versus major currencies and the Korean won (KRW) in January and February and weaken in April and May. This is in line with the fact that Japanese repatriation ahead of the fiscal year-end typically peaks at the end of February. The pattern of JPY appreciation in Q1 followed by depreciation in April and May is clearer for GBP-JPY, CAD-JPY, AUD-JPY, NZD-JPY, and JPY-KRW than [...]

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The past two weeks has witnessed a sea change in the way the Yen has traded. ‘Risk off’ days are now associated with Yen weakness rather than Yen strength, the opposite of the pattern observed through this financial crisis. This is further highlighted by the decoupling of the Yen crosses and Yen TWI from moves in equity markets. What has changed?
The market now realises that the Japanese economy has difficulties
One specific reason, why more Yen selling may occur is the realisation that the Japanese economy is facing extreme difficulties. The economy shrank by 12.7%qoq annualised in Q4. This revelation appears [...]

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