Impressive Japanese Flows at the end of the Fiscal Year

by
Marc Chandler
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Introduction by
George Dorgan
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Summary:

Japanese investors bought foreign bonds in the last week of March for the first time in nine weeks.

Foreigners bought the most Japanese stocks since last April.

The pain trade is for a break of JPY110.

Japan’s Ministry of Finance reports portfolio flows on a weekly basis with a week lag. The data just reported covers the last week in March, as the Japanese  fiscal year was drawing to a close.

Japanese investors bought foreign bonds and stocks. The JPY1.1 trillion of  foreign bonds purchased snaps a eight-week selling spree. It is the largest weekly purchase since September. For the first time since November, the four-week average is now positive.

Japanese investors were net buyers of foreign equities for the first time in four weeks. The JPY335.4 bln was the most since November. Foreign investors were busy too. They were buyers of Japanese stocks and bonds. Foreign investors snapped a six-week divestment campaign by purchasing JPY584.5 bln of Japanese equities. It was the most since last April. Foreign investors  bought JPY890 of Japanese bonds. It was the first net purchases since the start of the month and the most since  September. Recall that the dollar weakened at the start of last week as global markets reacted to the lack of a vote on the US Congress to repeal and replace the Affordable Care Act. That parliamentary maneuvers were to avoid a defeat, and called into question the ability of the Trump Administration to manage a fragmented party and estranged opposition to enact legislation. The greenback recovered after approaching JPY110.00 to test the JPY112.20 area before last weekend. This week, the dollar has found offers in the JPY111.20-JPY111.50 area. In the aftermath of the FOMC minutes, the easing of US yields and reversal of earlier strong equity gains, has seen the dollar sold back below JPY110.50. Thursday’s price action may also be influenced by chunky options expiration at the US cut. These include JPY110 (~$515 mln), JPY110.35 ($530 mln), JPY110.75 ($422 mln), and JPY111.00 ($419 mln).

USD/JPY - US Dollar Japanese Yen, April 08 (see more posts on USD/JPY, ) Source: investing.com - Click to enlarge

The JPY110 area corresponds with the 50% retracement of the dollar’s gains since the US election. The technical indicators are not generating strong signals. The “pain trade” is a break of JPY110.00, which would likely spur stops and option-related selling. Some dollar buying could materialize ahead of JPY109.50, but below there, nothing stands out until closer to JPY108.40, while the 61.8% retracement is a little below JPY108.

Meanwhile, Japanese equities are having a rough time. Following the US reversal and yen’s strength, the Nikkei and Topix have been sold to new 2017 lows. The Nikkei may find support near 18500. The Topix may find support near 1450-1467.

About Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

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