AUD and JPY bore the brunt of the markets negativity again this week and are forcing the interested parties to reconsider their recent forecasts. The might of Abenomic has been well covered in detail and remains a work in progress for the Bank of Japan. The Aussie thus far reasons are being thrashed out. The currency from ‘down-under’ is finding fault with its own country’s deteriorating economic fundamentals, falling commodity prices and slower Chinese economic activity. In theory the likelihood that the global search for yield will also decline as global growth recovers.
One week on, and the worlds most crowded and talked about trade continues to go deep. Being supported on pullbacks has outright ¥ now eyeing ¥103 as its next intended target. With the market looking towards the eventual end of QE by the Fed has given ¥ the green light to be slammed in the wake of the Bank of Japan’s efforts to stimulate its own domestic economy through its bond-buying program.
Other weekly portfolio data revealed that the Japanese investor remains a net buyer of foreign assets for a third-consecutive week – it seems that the six-weeks of ¥ repatriation from early March to mid-April has finally stalled. Domestic Japanese residents purchased +¥186-billion of foreign bonds, +¥19-billion of foreign stocks, resulting in a net outflow of ¥ equal to -¥206- billion. It’s no wonder that USD/JPY has quickly become a more crowded trade, especially now trading north of ¥100.
There should be a note of caution; the pace of the Japanese investors buying of foreign bonds is already beginning to slow and currently remains below the pace seen this time last year. Even the speed of foreign purchasing of Japanese equities has also rebounded. Investors would be better off following EUR/JPY where “corrective pressures” are most likely to appear first hand.
On the other hand, outright AUD continues to plummet following its medium-term top. Immediate support is seen at .9700 and through here with momentum conviction opens up the new handle of 0.9585/75.