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Forex Flash: Japanese delusions - Societe Generale

FXstreet.com (Barcelona) - Sebastien Galy, Senior FX strategist at Societe Generale notes that Japanese names ended up being net sellers of foreign bonds, rather than buyers as expected.

He can see two possibilities.

Firstly, the market was irrational and blew out of proportion some flows into Europe, Mexico and South Africa. Overall, he sees that Japanese names were selling bonds because they preferred long dated JGBs and were afraid that JPY would rise. Secondly, Japanese names were selling aggressively UST, seeing better value at home as they did many years ago. He adds that they did invest abroad but the welling of UST was a much bigger picture.

He feels that the second theory would explain why there was so little activity in the USD/JPY cross currency market, with only price moving. He writes, “I find the first theory hard to believe. The South African bond flows were large for that market and official data backed by info from locals. The rest of the European and Mexico bond story seemed very real and a senior PM from Nissay did say on bbg he had bought French and Spanish bonds.”

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