Across the Curve

Dollar/Yen

Here are some anonymous and intelligent thoughts about dollar/yen which I received via email earlier today. A reader forwarded it to me and the reader redacts the author’s identity and firm. It is a worthwhile piece. In this instance, the typos are not mine but the author’s!!!

Why is Usd/Jpy so heavy?                                                         * In the last three weeks, Usd/Jpy and risk correlation has broken down.  Usd
Jpy typically trades w/a 60/70% correlation w/equities, but in the last three
weeks the correlation has broken down, now only 30% correlated.
* One explanation for the correlation breakdown is that 3mth USD LIBOR is now
LOWER 3mth JPY LIBOR.  This spread turned negative about three weeks ago, and
in the same timeframe, Usd/Jpy has also fallen 2.9% (see chart attached).
Bottom line, the USD is soon becoming the new global funding currency, taking
over JPY’s role.
* XXXYYYZZZ JPY strategist Tomoko Fujii also points out that the current political
transition might mean that there is no firm JPY policy decision making process
in place yet. That said, the mkt generally things authories may intervene
around 87.10 level.
* Investment flows have also been JPY supportive. Japanese repatriation and
foreign investment inflows into Japan has picked up since DPJ victory.  Also,
into fiscal half-year end, Japanese institutional investors investors tend to
slow new investments abroad and Japanese corporate repatration may pick up.
* Today’s low was 91.41, and the next big level is 90.80.  Barriers pick up at
88 and below for the 1-3mth tenors.