Dollar/Yen Rate Snubs Buoyant Tune. By Nicholas Hastings and Katie Martin
Global risk appetite may be driving most major currency pairs -but not dollar/yen just yet.
As a safe haven, the Japanese currency has been pushed sharply lower against most other currencies as hopes of a global recovery have encouraged investors to take more risk.
However, its performance against the U.S. currency has remained moribund, showing little clear direction either way. Efforts to push the dollar higher have repeatedly run into stiff resistance just above Y95.
The poor outlook for the Japanese economy itself suggests that the dollar could eventually break higher against the yen -especially if interest rates turn in favor of the buck.
But, this doesn't take into account either the investment or speculative flows that appear to be supporting the Japanese currency just now.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, said that his bank's custodial data as well as portfolio flow figures from Japan's ministry of finance, confirm that foreign investors have been active buyers of Japanese assets since the start of this financial year in April.
"Foreign investors are showing a concerted interest in Japanese equities right now...and inward bound flows are, if anything, supportive and certainly not detrimental (to the yen)," Mellor said.
At the same time, Japanese investor interest in foreign assets has failed to materialize in the way one might expect during a broad risk rally, pinching a further common source of yen selling.
"Japanese retail investors are not convinced that overseas assets are that appealing," said Geoffrey Yu, a currencies analyst at UBS in London.
"If you look at the take-up of (foreign currency-denominated) Toshin funds over the past two or three weeks, huge volumes have been announced, but the take-up has been really low," he said.
Indeed, Sue Trinh at RBC Capital Markets in Sydney pointed out that fresh issuance of Toshin funds is about to dry up, potentially prompting a jump in the yen against the Australian dollar.
Speculators are also buying, not selling, the yen too. Recent futures data from the Chicago Mercantile Exchange showed that speculative accounts are holding 24,000 net long yen contracts - roughly the same level as at the start of 2008.
That is a far cry from the 188,000 short contracts that were held at the height of the carry trade in the summer of 2007 when the dollar was up at Y124.
"In other words, the speculative element that was an integral component of the yen's downtrend through to the third quarter of 2007 is not present in July 2009," said Mellor at Bank of New York Mellon.
To Mellor's colleague Simon Derrick, this could all be a source for concern. "What's happening in the yen is an interesting warning sign," he said.
"The flow data does not support the idea that there is a broad return of risk appetite. I really think the market should be paying more attention to it," he added.
At 0625 GMT, the dollar was giving up overnight gains, at Y94.94, from Y95.26 late in New York Tuesday, according to EBS. The euro was steady at $1.4394 from $1.44 and a little weaker at Y136.67 from Y137.18. The dollar was steady at CHF1.0602 from CHF1.0609, while the pound was in a tight range at $1.6926 from $1.6936.
As a safe haven, the Japanese currency has been pushed sharply lower against most other currencies as hopes of a global recovery have encouraged investors to take more risk.
However, its performance against the U.S. currency has remained moribund, showing little clear direction either way. Efforts to push the dollar higher have repeatedly run into stiff resistance just above Y95.
The poor outlook for the Japanese economy itself suggests that the dollar could eventually break higher against the yen -especially if interest rates turn in favor of the buck.
But, this doesn't take into account either the investment or speculative flows that appear to be supporting the Japanese currency just now.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, said that his bank's custodial data as well as portfolio flow figures from Japan's ministry of finance, confirm that foreign investors have been active buyers of Japanese assets since the start of this financial year in April.
"Foreign investors are showing a concerted interest in Japanese equities right now...and inward bound flows are, if anything, supportive and certainly not detrimental (to the yen)," Mellor said.
At the same time, Japanese investor interest in foreign assets has failed to materialize in the way one might expect during a broad risk rally, pinching a further common source of yen selling.
"Japanese retail investors are not convinced that overseas assets are that appealing," said Geoffrey Yu, a currencies analyst at UBS in London.
"If you look at the take-up of (foreign currency-denominated) Toshin funds over the past two or three weeks, huge volumes have been announced, but the take-up has been really low," he said.
Indeed, Sue Trinh at RBC Capital Markets in Sydney pointed out that fresh issuance of Toshin funds is about to dry up, potentially prompting a jump in the yen against the Australian dollar.
Speculators are also buying, not selling, the yen too. Recent futures data from the Chicago Mercantile Exchange showed that speculative accounts are holding 24,000 net long yen contracts - roughly the same level as at the start of 2008.
That is a far cry from the 188,000 short contracts that were held at the height of the carry trade in the summer of 2007 when the dollar was up at Y124.
"In other words, the speculative element that was an integral component of the yen's downtrend through to the third quarter of 2007 is not present in July 2009," said Mellor at Bank of New York Mellon.
To Mellor's colleague Simon Derrick, this could all be a source for concern. "What's happening in the yen is an interesting warning sign," he said.
"The flow data does not support the idea that there is a broad return of risk appetite. I really think the market should be paying more attention to it," he added.
At 0625 GMT, the dollar was giving up overnight gains, at Y94.94, from Y95.26 late in New York Tuesday, according to EBS. The euro was steady at $1.4394 from $1.44 and a little weaker at Y136.67 from Y137.18. The dollar was steady at CHF1.0602 from CHF1.0609, while the pound was in a tight range at $1.6926 from $1.6936.
- 5 August |
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