Has Japan’s Earthquake Stopped Mrs Watanabe from Trading?

The sharp rise in the Japanese Yen has triggered a lot of talk of repatriation by Japanese investors and the price action of the Japanese Yen certainly suggests that this could be true, but has the earthquake really put investors offline? I did some research on this and here’s what I found:

1) The MoF publishes weekly data on Japanese purchases of foreign bonds and stocks. The latest data was from March 11th and it showed Japanese purchases of foreign bonds rising by Y772B. This report doesn’t accurately reflect positioning after the earthquake but next week’s report will be important because that will include the post-earthquake flows.

2) The Tokyo Financial Exchange publishes daily data on Forex Margin Contract positioning. According to the latest reports, we have not seen a major decline in short and long yen holdings since the beginning of the month. Between March 1 and March 16, total long and short USD/JPY positions declined by 3.86% while total long and short positions in AUD/JPY increased 27.87%. Here are the numbers:

3) Most of the foreign investments held by Japanese investors are in the form of Toshins (foreign currency denominated investment trusts). Their holdings are estimated to be around Y25 trillion ($300 billion). Repatriation of Toshin investments are rare but of course, these are unprecedented times for Japan. Japanese investors tend to freeze their Toshin investments first to avoid additional losses. The population in the region most affected by the quake also tend to be far more conservative investors than the rest of Japan which means that their holdings of Toshin investments are lower. Toshi investments are also usually held by high net worth individuals.

4) Finally, from my observation, Japanese traders have not slowed down at all and in fact have increased activity most likely due to the increase in market volatility.

Therefore it would be remiss to automatically assume that Mrs. Watanabe has been so shelled shocked by the earthquake and nuclear crisis that she has stopped trading or brought all of her foreign held funds back home.

About Kathy Lien 235 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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