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JPY’s external backdrop remains constructive - TDS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 8, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at TDS, suggests that the Japan’s external capital flow profile continues to improve.

    Key Quotes

    “In the 12 months to October, the Broad Basic Balance of Payments (BBoP), which incorporates net FDI and portfolio flows into the standard current account presentation, remained near its best level in nearly six years. The general trend of these flows has improved steadily since mid-2013. In particular, we note that total net foreign portfolio outflows are elevated, but equity purchases have begun to level off after a period of strong accumulation.

    Much of this coincided with increased foreign purchases by the GPIF for instance. After expanding rapidly in recent quarters, public pension holdings of equities appears to have peaked in Q2 of last year. Additionally, greater foreign asset exposure could imply a headwind to JPY weakness if investment income is repatriated on a persistent basis as pension benefits are paid out (a risk given weak demographics).

    At the same time, we note that Japan has quietly enjoyed a strong and positive terms of trade shock. With a high import concentration of commodities and raw materials from abroad, the economy has benefitted immensely from the collapse in input prices. For example, even when taking the depreciation of the currency into account, the CRB commodity price benchmark is still down by more than 37% in JPY terms since mid-2014.

    This has translated into a trade surplus after Japan languished in deficit for a few years. This is the direct result of lower energy import costs. Exports and non-fuel imports have remained fairly stable in recent months This should leave Japan well placed should we see the modest uptick in global and regional growth we expect this year, providing more of a tailwind for the currency in the months ahead.”
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