Macroscope | Yen bears may emerge from hibernation in April

Like Hokkaido’s Higuma Bears, yen bears may be poised to come out of hibernation. But the latter won’t be driven by the advent of spring in Japan but by the beginning of the new Japanese financial year on April 1, which could be accompanied by new capital outflows out of the yen.

By that same token, investors should be wary of over-interpreting price action in the last days of March which, to a large extent, may merely reflect Japanese financial year-end balance sheet window dressing. Just because the yen comes home doesn’t mean it will stay there once the new financial year begins.

Additionally, Japan’s investors will have fresh money to put to work in the new financial year and that too may mean yen-negative offshore investment.

In the fixed income sphere, Japanese investors may rationally conclude their best options for earning material yields lie offshore, with the Bank of Japan (BOJ) seemingly determined to stick to its current monetary policy settings regardless of anything happening elsewhere.

“There is no reason to reduce the level of monetary accommodation in light of current economic and price developments,” BOJ governor Haruhiko Kuroda said on Friday. “I don’t think we need to raise our interest-rate targets now. It’s unclear whether inflation will hit our 2 per cent target before my term ends” in April 2018.

“The [BOJ] will not raise the target level of the long-term interest rates just because of a rise in such rates in other countries,” he added.

Mitsubishi UFJ Morgan Stanley Securities (MUMSS), writing on Friday, felt that while the path of the dollar/yen exchange rate is hard to predict, it may “remain in a narrow range over the near term” but that the yen is unlikely “to appreciate much further.”