TOKYOâChina ramped up its purchases of Japanese government bonds in July, likely adding to speculation that the growing money flow could be contributing to the yen's recent strength and lower government bond yields. China bought a net 583.0 billion yen ($6.96 billion) worth of Japanese financial assets in July, Japan's Ministry of Finance said Wednesday. All or nearly all of that buying is thought to be in JGBs. The figure was higher than the net 456.7 billion yen China purchased in June. In May, China, set to displace Japan as the world's second-largest economy this year, bought a net 735.2 billion yen.
# Last week, the MOF/BOJ modestly surprised traders by intervening to support JPY for the first time in six years. The reaction in the stock market was overwhelmingly positive and swift. If the interventions cause JPY/USD to backtrack to a JPY/USD 90 handle, we see 8%~10% upside in the Nikkei 225, and more in the exporters over the short-term. # However, we would caution against an "all in" commitment to Japanese equities based on this development, because the real solution to Japan's long standing deflationary problem lies in addressing structural reform, which has studiously been avoided since Junichiro Koizumi left office in 2006. Unless the fundamental factors that are driving the yen significantly reverse e.g., the shrinking US-Japan bond yield spread the BOJ's unilateral interventions are but a stop-gap measure and JPY/USD appreciation will return, to the detriment of Japanese stock prices. Further, september interim corporate profit results are likely to be characterized by downwardly revised full year targets, reduced or postponed capital investment plans, increased overseas outsourcing, and all sorts of additional cost-cutting measures that will further squeeze companies down the food chain, negatively affect headcounts and therefore salaries and bonuses i.e., consumption. Source TJI
I wonder whether BOJ will sell JPY into a forming strength, that would definetely stop the uptrend, for how long nobody can tell.
Wed Sep 22, 2010 1:39am EDT By Leika Kihara TOKYO (Reuters) - Japanese Prime Minister Naoto Kan said Tokyo was ready to act again if the yen moved sharply, keeping traders on guard against further intervention as expectations of U.S. monetary easing weighed on the dollar. Japan intervened in the currency market last week by selling yen for the first time in more than six years as its surge to a 15-year high against the dollar threatened to derail Japan's slowing economy and worsen deflation. In an interview with the Financial Times published on Wednesday, Kan said currency intervention would be unavoidable if there were a drastic change in the yen exchange rate. The comments coincided with the dollar's drop below 85 yen to its weakest level since last week's intervention, after the Federal Reserve signaled it was ready to stimulate the U.S. economy more. Traders said the yen was still below levels that would trigger another intervention, but more yen selling could not be ruled out. "I don't think markets are bracing for imminent intervention with the dollar still above 84.00 yen. But if the dollar falls further to test 82 yen, markets will focus on whether authorities will step in again to defend that level," said Ayako Sera, market strategist at Sumitomo Trust & Banking. "Japanese authorities will intervene in the event of sharp market moves, regardless of whether Kan will be away from Japan or not." Kan, who is traveling to New York this week for a U.N. General Assembly meeting, said there was an agreement among G20 nations that overly rapid currency movements were undesirable, and that he would seek to defend Japan's action. Bank of Japan Governor Masaaki Shirakawa declared further support for the country's economy, saying in a newspaper interview the central bank would provide ample funds to the market. That would include liquidity supplied through intervention, Shirakawa said, suggesting that the BOJ would continue to refrain from draining funds released into the market when authorities sell the yen. The BOJ also stands ready to ease policy further at its next rate review on October 4-5, although there is a debate within the bank on what exactly it should do next with its policy options limited, sources familiar with the bank's thinking said. BOJ'S OPTIONS Those options include increasing government bond purchases, buying private sector assets or expanding a cheap fund-supply scheme targeting growth industries, sources say. Shirakawa told the Yomiuri newspaper that greater uncertainty about the global economy meant increased risks to Japan's recovery, a warning echoed by BOJ board member Ryuzo Miyao. Miyao, who joined the board in March, told business leaders in western Japan that a possible extended spell of sluggish U.S. economic growth could force the BOJ to alter its forecast of a sustained moderate recovery in Japan's economy. He also said the BOJ was not ruling out any policy option, including increasing its government bond buying from the current 21.6 trillion yen ($254.5 billion) per year. With its hands tied by public debt double the size of Japan's $5 trillion economy, the government has mainly counted on the BOJ to come up with ways of revving up the sagging economy. But Kan said Tokyo planned a comprehensive package of measures that would stimulate domestic demand and help to weaken the currency. While he did not elaborate on measures to boost domestic demand, he said one option was to use the yen's strength to invest in natural resources overseas. "I think it is necessary to combine economic policy and monetary policies that will be conducive to ... (a yen exchange rate) slightly lower than the current level," he added. Kan has instructed his cabinet to compile an extra budget for the current fiscal year to March, although the size of spending will likely be too small to significantly boost the economy. Unsterilized interventions are a departure from the usual central bank practice of absorbing the extra funds through issuance of government bills, effectively making intervention a part of a monetary loosening mix. Source Reuters
Many traders expect Japan may step in somewhere between 83.00 and 85.00 yen. They said the authorities have called around banks to ask if they will be staffed on Thursday, a Japanese national holiday, in an apparent attempt to keep traders cautious over intervention. "I suspect we may need to see the dollar fall a bit faster against the yen to trigger intervention for now. But they will probably intervene if the dollar falls below 83 yen," said a trader at a Japanese bank in Tokyo. Source Reuters
Good to know so many non commercials still long JPY : http://www.cftc.gov/dea/futures/deacmelf.htm ;=)