I was on CNBC Squawk Box Australia last night talking about the Australian dollar, China and Japanese Yen with Karen Cho
I was on CNBC Power Lunch this afternoon talking about the Japanese Yen and intervention risk.
The sharp rise in the Japanese Yen has triggered a lot of talk of repatriation by Japanese investors and the price action of the Japanese Yen certainly suggests that this could be true, but has the earthquake really put investors offline? I did some research on this and here’s what I found:
1) The MoF publishes weekly data on Japanese purchases of foreign bonds and stocks. The latest data was from March 11th and it showed Japanese purchases of foreign bonds rising by Y772B. This report doesn’t accurately reflect positioning after the earthquake but next week’s report will be important because that will include the post-earthquake flows.
2) The Tokyo Financial Exchange publishes daily data on Forex Margin Contract positioning. According to the latest reports, we have not seen a major decline in short and long yen holdings since the beginning of the month. Between March 1 and March 16, total long and short USD/JPY positions declined by 3.86% while total long and short positions in AUD/JPY increased 27.87%. Here are the numbers:
3) Most of the foreign investments held by Japanese investors are in the form of Toshins (foreign currency denominated investment trusts). Their holdings are estimated to be around Y25 trillion ($300 billion). Repatriation of Toshin investments are rare but of course, these are unprecedented times for Japan. Japanese investors tend to freeze their Toshin investments first to avoid additional losses. The population in the region most affected by the quake also tend to be far more conservative investors than the rest of Japan which means that their holdings of Toshin investments are lower. Toshi investments are also usually held by high net worth individuals.
4) Finally, from my observation, Japanese traders have not slowed down at all and in fact have increased activity most likely due to the increase in market volatility.
Therefore it would be remiss to automatically assume that Mrs. Watanabe has been so shelled shocked by the earthquake and nuclear crisis that she has stopped trading or brought all of her foreign held funds back home.
My good friend Rhonda Staskow has posted updated charts on the positioning of Japanese retail traders transacting through TFX, one of the largest FX brokers in Japan. According to their latest data, Japanese traders are turning net long USD/JPY, EUR/JPY and GBP/JPY after being net short in March. There are no major changes to the positioning in CAD/JPY, AUD/JPY and NZD/JPY, which have been net long for the past year.
Here are the charts:
We all know that Japanese traders have been obsessed with the carry trade. However given the more than 30 percent decline in many of the Yen crosses last year, many people may be wondering how many Japanese carry traders are still in the game. Can these traders still remain committed to their long AUD/JPY and GBP/JPY positions given the big losses that they have already taken?
My good friend Rhonda Staskow has compiled some great charts illustrating the changes in long yen positions at Tokyo Financial Exchange (TFX) and Gaitame.com, two of the largest retail currency brokers in Japan. These charts run from May 28 2008 to Jan 6, 2009 and are presented as the percentage of longs in overall positions.