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Forex Flash: Japanese foreign investment will be a focus this week - Nomura

FXstreet.com (Barcelona) - Nomura Strategist Yujiro Goto notes that Japanese foreign investment will be a focus this week.

He begins by noting that as Japanese holiday season called Golden Week ends on Monday, market focus on Japanese foreign investment activity will be a focus again this week.

While there is no major economic statistics is going to be released this week, he feels that April MOF capital flow data and April Eco-Watcher survey both released on Friday will be important. Further, weekly MOF capital flow data suggests Japanese investors keep selling foreign bonds and equities after the BOJ decision on April 4. He sees that monthly data will likely confirm relatively large selling by Japanese investors in April, but he believes that investors are going to know which type of investors were the major sellers of foreign bonds and equities. He writes, “We should focus lifers and toshin companies, as they take more FX risks than banks. If a large part of selling comes from banks and/or pensions as happened in the first quarter, expectation for lifers and toshin companies‟ aggressive diversification into foreign bonds can increase again.

Goto continues to note that the household related future DI of Eco-Watcher survey is one of the good leading indicators for toshin momentum. Thus, he is watching the DI closely to evaluate the possibility of recovery in toshin momentum. He expects sentiment to have improved further in April, thanks to equity price increases and JPY weakness, suggesting toshin momentum is likely to recover gradually. He notes that to evaluate the possibility of an acceleration of Japanese investment in foreign assets, stabilization of JGB market is still important. In terms of JGB auctions, the only auction for enhanced-liquidity is scheduled this week, while the BOJ will conduct outright JGB buying operations (rinban operations) once or twice. He writes, “The supply-demand condition in JGB market is likely to be better this week, even though US yields rose after the US NFP last Friday. If JGB yields remain at low level and yield differential widens, expectations for more aggressive foreign asset buying by Japanese investors after Golden Week will rise.”

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