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May was a month to forget for those individuals who panicked when they were unable to handle the volatility of the Nikkei. For a larger percentage, it was a month when they took some profit off the table in two of the worlds most crowded trades -- long the Nikkei and short the yen. The last trading day of the month ended in a whimper for many investors, with USD/JPY maintaining its correlation with the country's main equity index. The market seems a tad uneasy to push the dollar much lower, what with supposed standing bids scattered around the ¥100.50 optioned related level and trailing all the way down to the ¥99 handle.

Week-ending Japanese data (inflation and industrial output), on the whole, has been relatively good and for many individuals further proof that Abenomics is working. This has resulted in USD/JPY offers being more difficult to find. The Ministry of Finance money flow report from the week ended May 25 revealed that Japanese players continued to be a net seller of foreign bonds (net ¥1.173-trillion, volume remaining heavy, ¥5.229-trillion sales vs. ¥4.1057 trillion buys), and easily surpassing the previous week's print (¥800.6-billion).

However, fresh buying of foreign product still remains and evidence suggests that U.S. treasuries have been the major recipient of Japanese flows (the U.S. trading at or above +2% has Tsy's/JGB spread widening), while both OATs (French bonds) and BTPs (Italian bonds) garnered some interest. The data also suggests that retail investors continue to move out of maturing emerging markets (NZD and AUD) and are happy to reinvest in their own domestic equity market. Of note, foreign investors remain net buyers of Japanese stocks, and this despite the plunges recorded in the past week.

Source: Week In FX Asia - Where Is Mrs. Watanabe's Money Going?