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2 Oct 2013
Flash: Yen to remain a funding currency? – BTMU
FXstreet.com (London) - Derek Halpenny, strategist at the Bank of Tokyo-Mitsubishi UFJ, noted the action in the Asian session and subsequent tell-tale signs for the Yen going forward.
Key Quotes:
“The standout observation from the Asian trading session is the notable under-performance of Japanese equity markets with the Topix down 1.5% while the rest of Asian markets were all higher following the rise in US equity markets yesterday. That has resulted in the yen making some modest gains
also”.
“Market newswires are reporting a large liquidation of short-dated15,000 calls in the Nikkei as the driver of the sell-off. Perhaps positions established to take advantage of buying in the aftermath of Abe’s speech yesterday? That buying clearly didn’t materialise”.
“…it would be unfair to suggest the speech from Abe was in some way disappointing. Abe confirmed the sales tax rise would take place and spoke of measures to reduce the tax burden on the corporate sector. There was always going to be a degree of doubt setting in regard to ‘Abenomics’ and hence big yen sell-offs on the back of ‘Abenomics’ developments are a thing of the past”.
“…investors will still watch closely for signs of success and if those signs are forthcoming, investors are likely to conclude that the yen is the obvious funding currency of choice going forward”.
“One sign of success would be rising inflation expectations that would help drive real yields lower and encourage greater capital outflows from Japan and weaken the yen. However, inflation expectations look to be declining once again. The BOJ monthly survey revealed that over a one-year period Japanese households expect prices to rise by 3% - the same as the July
survey”.
“Over a five-year period expectations eased back from 2.5% to 2%.For now though, USD/JPY will be more determined by events in Washington and in that sense the risks perhaps remain to the downside”.
Key Quotes:
“The standout observation from the Asian trading session is the notable under-performance of Japanese equity markets with the Topix down 1.5% while the rest of Asian markets were all higher following the rise in US equity markets yesterday. That has resulted in the yen making some modest gains
also”.
“Market newswires are reporting a large liquidation of short-dated15,000 calls in the Nikkei as the driver of the sell-off. Perhaps positions established to take advantage of buying in the aftermath of Abe’s speech yesterday? That buying clearly didn’t materialise”.
“…it would be unfair to suggest the speech from Abe was in some way disappointing. Abe confirmed the sales tax rise would take place and spoke of measures to reduce the tax burden on the corporate sector. There was always going to be a degree of doubt setting in regard to ‘Abenomics’ and hence big yen sell-offs on the back of ‘Abenomics’ developments are a thing of the past”.
“…investors will still watch closely for signs of success and if those signs are forthcoming, investors are likely to conclude that the yen is the obvious funding currency of choice going forward”.
“One sign of success would be rising inflation expectations that would help drive real yields lower and encourage greater capital outflows from Japan and weaken the yen. However, inflation expectations look to be declining once again. The BOJ monthly survey revealed that over a one-year period Japanese households expect prices to rise by 3% - the same as the July
survey”.
“Over a five-year period expectations eased back from 2.5% to 2%.For now though, USD/JPY will be more determined by events in Washington and in that sense the risks perhaps remain to the downside”.