Yen to Strengthen Further?

I am back from vacation and found this interesting tidbit that could lead to further Yen strength over the next few days:

Sumitomo have announced they are looking at doing a rights issue next week (up to USD 8.6 bio equiv) of which 50% will be offered to non domestics. This deal is expected to close on the 16th June and allocations likely to be given on the 17th June settlement T+3.

There could be a lot of interest in this as:

a) real money managers continue to invest generally for low levels
b) Global equity managers are very underweight Japan
c) There is general appetite for financials.

Given real money equity managers do not currency hedge this has the potential to create heavy buying of YEN this week, particularly against the non dollar currencies.

Look out below EURJPY!



  1. Kathy,

    Is $4B (50% of offering) large enough to move the market significantly?
    With a $4T daily FX market, and JPY at about 17% of transactions ($560B) that’s less than 1% of yen daily volume, even if fully subscribed.


  2. The Commitment of Traders report shows that commercials were net short yen as of last Friday. How helpful is this data in trading currencies? I have found COT analysis to be generally helpful for commodities (specifically agriculture) but am unsure about the currency arena.

  3. The chart displays some downside potential and am currently speculatively short this pair. The USD seems to have turned overboard so I am expecting a correction on the stock and commodities markets.

  4. Paul – $4 B will be enough to move the markets in the near term just as short term M&A flow can impact currencies.

    In Debt – It is quite helpful in telling us the bias of the market and how overstretched positions may be

  5. Thanks for the analysis Kathy. Along with the fndamental analysis, this also looks to be a good double top formation.

    I feel that the currency pair will find support at the 1st low.

    What is your take Kathy?

  6. Good call on this trade! I did not have a position here. But I noticed that Eurodollar futures are turning bearish on stronger bonds. What kind of outlook does that give for the dollar index? It looks short term bullish to me or better yet, an optimal short entry pt if you have a longer time horizon.


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