USD/JPY: Seasonality This Week
February 10, 2009
For people who are familiar with my work, you may know that I love Seasonality studies! I have just picked up on a case of seasonality in USD/JPY that you may find interesting. Since 2000, USD/JPY has fallen 6 times out of the past 8 years. Although this is not a tremendous amount of data, it does represent 75 percent of the samples.
USD/JPY tends to have a bias to fall this week because there are usually large coupon and redemption flows happening around Feb 15. This leads to repatriation by Japanese investors out of US dollars and back into the Japanese Yen. We are already beginning to see renewed risk aversion.
If you like to read about Seasonality, read my post on What is Unique about February?
Posted in forex blog, forex seasonality, usd/jpy
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February 10th, 2009 at 11:19 pm
The seasonality you describe has occurred for many years. The question is how much money is there to repatriate under these economic conditions?
Since the JPZ were net buyers of of foreign bonds and stocks and foreigners were net sellers of JPZ stocks last week what convinces you that there will be REAL JPY flow into Japan?
February 10th, 2009 at 11:59 pm
there’s an interesting Economist article this week on the yen (Feb 7-13, pg 65), regarding whether or not the JPY is overvalued. Firstly, they argue that, on a trade-weighted basis, it is not, and is more in the middle of that range (currently the trade weighted $/JPY is about 135, within a historical range of about 100-175).
Secondly, Tohru Sasaki of JPMorgan says household holdings of overseas securities remains huge, 13.9 Trillion yen ($154B), double the amount of a year earlier. He further claims that a climb to $/JPY of 85 will trigger a wave of stop losses, further driving it to 80 or even 75 before BoJ is compelled to intervene.
However, I would argue that it may not come to pass so violently
1) the BoJ rate of 0.1% is essentially zero, why repatriate? the Japan sovereign CDS swaps rate has increased by 32% in the last month- there’s not that much more safety there.
2) FT article of 9 Feb has BoJ top researcher warning of an “unimaginable” contraction in the current quarter, an annualized contraction of 10%, and the possibility of becoming the worst afflicted of all developed economies. As an essentially export-driven country, an even stronger JPY will be disastrous, and I think BoJ will do what it needs to. They did in 2004, buying $145B in UST to support the 105 level!
3) although the trade weighted exchange rate may be normal, that’s not what the market sees. what it sees is a rate that has not been below 100 for over 10 years.
4) at least until the bailout gets figured in, Japan has the same -3% budget balance the US, France, Italy, and even Spain does. there’s cracks in that armor…
my 2 cents…
February 11th, 2009 at 1:00 am
Paul, in my experience the break-even for most JPZ exporters from a Forex perspective is in the USDJPY 108-112 range. The problem has been that EURJPY has been too high and its drop has been causing USDJPY to come under pressure.
During 2004 BOJ commented on how they knew that the investment houses were using EURJPY to push down USDJPY. This is also the time they instigated Stealth intervention.
Currently, EURJPY is in a reasonable economic range and EURUSD may still be overvalued.
Your other comments are quite valid!