Yen's Rise Due to Repatriation May Be Overblown

Traders point to Japanese investors repatriating assets as a significant cause of the yen's dramatic rise. Really?

Japanese retail investors are significant players in the currency markets, and of course Japanese insurers and other companies invest heavily overseas.

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The current low interest rates in Japan have made these practices even more attractive. Also, Japanese investors have repatriated some assets in the past after major disasters, like the financial crisis of 2008.

As the yen has rocketed to new heights, and traders await an emergency conference call of the G-7 leaders about a possible reaction, many are banking on repatriation flows to support the yen.

But these traders and investors are probably going to have their hopes dashed, according to analysts at Nomura Securities. They found some pretty interesting data on which retail investors hold foreign currency Toshins, or investment trusts, the most common vehicle for retail overseas investment.

Of the roughly 25 trillion yen in Toshins, most are held by wealthy individuals with little need to raise immediate cash. Even more interesting, the area of Japan where the earthquake hit is home to the country's most conservative investors, with relatively low Toshin holdings.

"At this juncture, we expect outflows from Japan into new Toshin products to slow as a function of elevated risk aversion in Japan," the analysts wrote. "But we are not forecasting any large-scale repatriation which could have a big impact on the JPY or on the currencies which have received large Toshin flow (AUD, NZD and BRL)."

As for shorter-term trading, data from the Tokyo Financial Exchange from March 1 to March 16 shows no big decline in short and long yen holdings. Dollar-yen holdings declined slightly, but yen-Australian dollar holdings actually increased over 27%, according to Kathy Lien, director of currency research for GFT Forex.

So would this wave of repatriation come from institutions, like insurance companies? Not so much, says Masafumi Yamamoto, chief FX strategist for Japan at Barclays Capital. Not surprisingly, they're hedged, he says. Take a look, starting at 2:01.

The bottom line: the yen is moving—fast. But investors who think repatriation flows will support the currency may be in for a surprise.


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