September and its increased volumes and some M&A
Typically in September the Japanese Corporate and Institutional world wakes up from its Summer heat snooze and we see increased volumes, especially in the latter half,
where the corporates have an intermediate results hedge,some profit repatriation for the ex- and fx hedges for the importers.
-There have been some changes over the years though, coupled to economic migration moves and events, which see these hedges more randomly spread. The big exporters, such as carmakers for instance, are more foreign production and investment driven, creating less massive repatriation JPY demand. The importers are hedging energy and raw material imports more actively.
But we still see increased volumes as the books are updated at this time of year. Bear in mind that , barring oil prices , the rest of the energy bill has increased for Japan this year as their nuclear activity remains very low profile.
-Institutionals such as Pension Funds and Asset managers typically re-evalue their books and look at possible shifts in their portfolio’s, creating an extra volume in the market .So far this year FX hedging costs for the bond investors haven’t risen enough to un-hedge some of their foreign investments but the Fed’s persistent rate hike rhetoric and balance sheet unwind, could lead them to different ideas. If that would be the case, we can expect foreign currency demand this week.Japanese Equities have been performing well ,Nikkei rising about 10% since the start of this fiscal year, I wouldn’t think we’ll the need for see a major shift on that front.But it’s not only bonds, equities they’re looking at …
-As reported by the Nikkei this morning, Nippon Life is looking to buy a stake in TWC,it’s not massive but typically in Japan, when the whales start to move, there’s a suit not far behind.
Having their JGB returns constantly under pressure by BOJ’s zero interest rate and YCC policy, these institutions are looking for opportunities to put their money to work.Some institutions may feel the need to press some through before month end, but that’s just a guess.
-Being end of Q3 for the investment world we will get the rebalancing for Equity and Bond holdings over the various fixings this week .Typically looking this month ,Japanese equities have outperformed,which should see JPY selling coming through at investments remaining equal .
On Balance I reckon we will see more JPY supply than demand the next few days . Yesterday’s short term usdjpy purchase play turned out better than expected and I carried it up to 112.80 this morning.
I am looking to re-instate the long on a 112.50/60 set back or if we get a confirmed 113.10/15 break for 114.40.