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Forex Flash: Optimism ahead of key central bank decision - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that the DJIA closed at a record high last night which has given markets in Asia a lift as confidence over the global recovery continues to lift investor confidence.

He sees that the moves in global equities outside of Japan serves as a reminder that it is not just ‘Abenomics’ driving the yen weaker but also the notable upturn in investor confidence. Still, he adds that the yen is broadly stable again today and the factors that helped drive the yen weaker do not seem to be having the same influence now.

Certainly, he notes that he continues to see little evidence of any notable shift in Japanese retail appetite for risk that would argue for another leg lower for the Yen. He writes, “Indeed, the most available data indicates a substantial repatriation of foreign securities by Japanese investors. In the four weeks to 22nd February, Japanese investors sold JPY 2.3 trillion worth of foreign bonds – it was the first occasion of consecutive weekly sales over four weeks since December 2010. We don’t know the breakdown of who sold – it was probably mostly banks – but the data doesn’t suggest any notable upturn in retail risk appetite.”

Further, he feels that there has also been evidence of certain Japanese investors buying yen again as hedges against foreign currency depreciation are re-established. Halpenny notes that we get the latest weekly flow data from the MOF tonight and earlier today it was announced that the Upper House nomination hearings for the BOJ positions will take place on 11th March for Kuroda and 12th March for the two deputies.

He finishes by commenting, “Of course, we shouldn’t expect anything different from those hearings than what we got in the Lower House. There has been little news from Tokyo although ex-BOJ Board Member Mizuno had some strong words stating that Kuroda would “hit the wall of reality” if he becomes Governor highlighting the dangerous risks of the direction BOJ policy was going. With global investor confidence so positive at present, the correction stronger for the yen that we expect over the coming three months is unlikely for now.”

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