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JPY: Risk aversion keeps the yen in demand - MUFG

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 6, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, suggests that the dollar strengthened notably in the Asian region this morning with news of a nuclear bomb test in North Korea fuelling concerns for investors.

    Key Quotes

    “The Korean won is one of the under-performing currencies in Asia today although the Kospi closed only 0.3% lower suggesting the fallout for the won may also reflect reaction to the continued depreciation of the renminbi. The PBOC fixed USD/CNY at a weaker renminbi level once again, for the seventh trading day in a row fuelling speculation of a more pronounced move weaker for the renminbi.”

    “Sentiment wasn’t helped by the drop in the Caixin Services and Composite PMIs today although the Shanghai Composite is higher on the day. Of course, after the latest attempts by the authorities to arrest the slide in equities, there is a logical degree of scepticism over drawing any solid conclusions from a rebound in China equity markets.”

    “What is worth noting from the Asian trading session today is the fact that the Topix Index in Japan is one of the worst performing markets in the region. While all Asian currencies are weaker versus the US dollar, the Japanese yen has strengthened and again is showing signs of becoming a more favoured destination during periods of risk aversion. The yen of course has tended to perform well as equity markets are falling but the performance has been more stark recently.”

    “From a peak two days after the FOMC raised the fed funds rate for the first time, USD/JPY has dropped more than five big figure or by 4.2%. Over the same period, the DXY index is up around 1.0%. So the yen on a trade-weighted basis is surging. Indeed the advance of the BOJ’s nominal EER is now the largest turnaround since Abenomics was launched along with BOJ monetary easing in 2012-13. From the low point in June last year the JPY NEER is 10.5% higher and has now fully retraced the depreciation of the yen triggered by the second round of BOJ easing in October 2014.”

    “Japan’s current account surplus is surging at an unprecedented pace while the BOJ continues to stress limited need for further monetary easing. At the same time, the huge GPIF diversification flow to foreign securities looks to be completed and while the Fed has begun to raise rates, fully hedged purchases of foreign securities remains attractive for Japanese institutional investors, leaving the yen overall under increased upward pressure. The current pace of yen appreciation is beyond our expectations and if sustained would no doubt increase concerns in Tokyo, especially if it transmits to instability in the Japanese equity markets.”
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