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Flash: Yen supported by more volatile financial market conditions - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the yen has remained on a stronger footing in the Asian trading benefiting from more risk averse trading conditions.

He begins by noting that Fed Chairman Bernanke’s signal that the Fed is moving closer to easing the pace of monetary easing is weighing upon risk assets while financial market conditions have remained volatile in Japan overnight with the Nikkei 225 index finishing modestly higher on after yesterday sharp 7.3% decline although it has fluctuated in a wide range between 14,000 and 15,000.

He notes that similar price action was also evident overnight in the Japanese government bond market with yields finishing modestly lower although the 10-year yield fluctuated in wide range between 0.83% and 0.91%. he writes, “The recent setback for the “Abenomics trades” of a weaker yen and higher domestic equities appears more corrective in nature. BoJ Governor Kuroda when speaking overnight emphasized that it was “very desirable that the bond market develops in a stable manner…wanting to avoid volatility as much as possible”. “

Hardman continues to add that Kuroda noted that the BoJ wants to stabilize the bond market with flexible operations and will continue to strengthen communication with market participants. The recent rise in Japanese government bond yields appears to be attracting interest from Japanese life insurers. The President of Meiji Yasuda, the third largest life insurance company, stated overnight that the company would welcome a gradual rise in yields although spikes in yields can cause bond valuation losses.

President Tonooka also stated that the company will consider shifting some investment funds from foreign bonds to JGBs and may buy the 10-year and 20-year JGBs if their yields hit 1.0% and 1.7% respectively. In their current fiscal year investment plans the company expected the 10-year JGB yield to finish the year at 0.7%. If higher JGB yields acts to deter an expected pick up in demand for foreign assets, it may act to dampen the pace of further yen weakness ahead. Hardman finishes by writing, “Overall we still expect potential Japanese life insurers’ purchases of foreign assets to help support USD/JPY on dips.”

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