Portfolio flow data reveals that Japanese investors were net buyers of foreign bonds for the week ending July 18 for the 2nd straight week but buying declined to JPY116 billion from the previous week’s strong outflow of JPY681 billion, notes BNP Paribas.
“Still, looking at our 4-week moving sum measure the outlook is less promising as there was significant repatriation in previous weeks. The shift towards trend net outflows during May and June has contributed to our renewed optimism for USDJPY to rally. The reversal since has been disappointing,” BNP adds
“This retracement in trend net outflows may partly explain why USDJPY has struggled to bounce despite a generally more positive tone to the USD,” BNP argues.
Other factors, according to BNP, such as the robustness of the Nikkei 225 Index continue to signal USDJPY upside.
The ongoing rise in Japanese CPI (core Tokyo CPI rose to 2.1% yy overnight from 2.0%) combined with very low nominal yields on JGBs pushes real yields into heavy negative territory. These low yields should encourage outflows.
All in all, BNP sticks with its long USD/JPY position from current levels targeting 105.50.
