Japan: Foreign securities flows for August – Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank, lists down the Japanese foreign securities flow for the month of August.

Key Quotes

“According to foreign securities flow statistics for Japanese investors for August, the following major investor categories were substantial net buyers: life insurers ¥1.1486trn, financial instruments firms (covering investment products for retail investors) ¥919.7bn, investment trusts ¥722.5bn, and trust accounts (mainly covering pensions) ¥517.5bn.

The ratio of hedged foreign bond investment is believed to remain high among institutional investors such as life insurers, and we see this portion as basically neutral for the JPY market. However, recent negative interest-rate conditions in Japan and Europe have seen global-based buying of US hedged bonds pick up to the extent that mid/long-term interest rates are being pushed down, and it has been noted that this is having a bear impact on the USD/JPY.

At the same time, it has also been pointed out that Japanese investment in foreign securities in August may have seen some buying on dips by pension funds, life insurers, and retail investors near the USD/JPY threshold point of 100. While this has supported the USD/JPY at around 100, broad-based hedge selling by Japanese companies and investors to avert currency risk has continued to cap upside.

The USD/JPY is staring close to a technically crucial point in terms of whether it could be supported at 100 or fall well below 90. From a fundamentals standpoint, we think continued support at 100 requires a prompt pickup in expectations for multiple rate hikes in the US backed by a firm domestic economy. However, as long as uncertainty persists, we estimate that there is a relatively strong likelihood of the USD/JPY dipping below 100.”