JPY caught up in a regime change - Nomura

Analysts at Nomura note that JPY seems to be caught up in a regime change and the challenge in trading the yen is that its correlation with risk markets, such as equities, is changing.

Key Quotes

“This year the yen has sometimes behaved as a “risk-on” currency and sometimes a “risk-off” currency. This could partly be related to the broader tech cycle that is Japan-supportive, but it is also suggestive of a transition in market regime that is unfolding. The one trend we think is associated with whatever regime emerges is a weak dollar against the yen thanks to the US’s twin deficits, a “stagflationary” tilt in macro data and valuations.”

“Market interest in Japanese behaviour around fiscal year-end is rising. We estimate corporate repatriation to be 11% more than a year ago and while over JPY1trn of repatriated funds is not insignificant, corporates can still sell foreign currencies before March. We also note there has been no JPY appreciation seasonality in March. Thus, we do not expect Japanese repatriation to be a major driver of yen currency crosses. In the medium term, we judge Japanese demand for foreign direct investment to be an important driver, possibly offsetting a large part of Japan’s current account surplus.”