JPY: Are retail investors waiting for a dip? - Nomura

Yujiro Goto, Research Analyst at Nomura, notes that while equity performed well and JPY weakened in December, Japanese retail investors were net sellers of foreign assets and domestic equities via toshins during the period.

Key Quotes

“Retail investors likely took profits. In fact, the outstanding of Money Reserve Funds (MRFs) increased to JPY12.7trn ($109bn) as of end-December, the biggest amount ever (Figure 1). The outstanding increased from JPY10.6trn as of end-October, showing more than a JPY2trn rise within two months. The Eco-Watcher survey shows that household economic sentiment likely bottomed in June 2016, while consumer confidence improved in December to the highest level since September 2013. The accumulation of MRFs amid improving risk sentiment suggests there will be stronger demand for dip-buying from retail investors.” 

“In the margin trading market, USD/JPY positions turned to small long positions from short positions in December according to the Financial Futures Association Japan. As of end-December, margin traders held JPY158bn ($1.4bn) of USD/JPY long positions, turning from JPY312bn net short positions as of end-November. As margin traders tend to hold JPY short positions to gain positive carry income, it is unsurprising that their USD/JPY short positions have been unwound relatively quickly. Higher frequency data based on the TFX show margin traders still held small USD/JPY net short positions there, as of 17^th Jan (PY118bn or 1.0bn). Margin traders’ positions in USD/JPY remain close to flat, suggesting a possibility of dip-buying demand from margin traders too.” 

“Flow data related to Japanese retail investors showed limited activity by them until recently, although their inactivity suggests bigger room for dip-buying by them going forward, although overseas political uncertainty could keep them cautious in the near future.”