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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.