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22 Sep 2014
JPY likely to weaken despite strong growth - BAML
FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that Portfolio rebalancing has been the key theme of Abenomics for the FX market.
Key Quotes:
"As Japan's cash-centered portfolios rebalance into domestic and foreign risk assets in reaction to reflationary policies, the JPY is likely to weaken despite a stronger growth outlook and higher equity price."
"While the domestic bias remained strong until earlier this year, Japanese investors have started to shift into foreign assets, having bought about ¥12tn (US$110bn) worth of foreign securities over the five months to August, the first time since 2010. During the same period, even Japan's worrisome trade deficit was below ¥5tn, speaking of the potential impact of portfolio flow. Surely the seasonal factor helps the trend as Japanese investors generally start allocating new fiscal-year budgets in April, but macro conditions imply broader forces are probably in play."
"The increasing purchases of foreign securities have been driven by a wide variety of investor types, including insurance firms, investment trusts, and trust accounts (mainly pension) - not only banks with full FX-hedge. This trend of portfolio outflow may explain why domestics have not been contrarian in the US$/¥'s recent rally. Below, we examine many factors behind rising foreign security investments, which suggest the trend is founded on long-term macro fundamentals."
Key Quotes:
"As Japan's cash-centered portfolios rebalance into domestic and foreign risk assets in reaction to reflationary policies, the JPY is likely to weaken despite a stronger growth outlook and higher equity price."
"While the domestic bias remained strong until earlier this year, Japanese investors have started to shift into foreign assets, having bought about ¥12tn (US$110bn) worth of foreign securities over the five months to August, the first time since 2010. During the same period, even Japan's worrisome trade deficit was below ¥5tn, speaking of the potential impact of portfolio flow. Surely the seasonal factor helps the trend as Japanese investors generally start allocating new fiscal-year budgets in April, but macro conditions imply broader forces are probably in play."
"The increasing purchases of foreign securities have been driven by a wide variety of investor types, including insurance firms, investment trusts, and trust accounts (mainly pension) - not only banks with full FX-hedge. This trend of portfolio outflow may explain why domestics have not been contrarian in the US$/¥'s recent rally. Below, we examine many factors behind rising foreign security investments, which suggest the trend is founded on long-term macro fundamentals."