Angle: Rising Japanese stock prices, triggering demand for yen selling from overseas investors, with widespread impact due to speculation | Reuters

2024-02-29 22:00:00

On February 29th, in the foreign exchange market, attention is being focused on the relationship between the rise in Japanese stock prices and the flow of yen selling, which has continued since the beginning of the year. Photographed on the 22nd in Tokyo (2024 Reuters/Issei Kato)

TOKYO (Reuters) – In the foreign exchange market, the relationship between the rise in Japanese stock prices and the flow of yen selling, which has continued since the beginning of the year, is attracting attention. With the increase in unrealized gains on Japanese stocks held by overseas investors, there has been a large-scale yen sale for the purpose of hedging (avoiding) exchange rate risk, with some estimates suggesting that the size of the sale exceeds 10 trillion yen. The yen has fallen to historic lows not only against the dollar, but against a wide range of currencies, with speculation from speculators taking hold.

<10% rise in Japanese stocks, 8 trillion yen worth of yen selling demand>

With the Nikkei Stock Average hitting a new all-time high, the foreign exchange market has been drawing attention to the huge yen selling by foreign investors.

When buying Japanese stocks, overseas investors who adopt a strategy of avoiding the effects of exchange rate fluctuations offset the effects by shorting the yen, depending on the amount of yen assets they own, or in other words, their long yen positions.

If the stock price rises as expected, the valuation will increase, and there will be a need to increase currency hedging accordingly. This additional yen selling is one of the reasons behind the recent rise in Japanese stock prices and the simultaneous depreciation of the yen.

There is no data on foreign investors’ foreign exchange trading or hedging status, but according to Osamu Takashima, a currency strategist at Citigroup Securities, roughly 30% of foreign investors use currency hedging when investing in Japanese stocks.

Taking into account factors such as the ratio of foreign ownership and the market capitalization of the Tokyo Stock Exchange, he calculated that “a 10% rise in stock prices would result in approximately 8.3 trillion yen worth of yen selling.”

Takashima declines this estimate, saying it is “just a reference for deepening the discussion,” but the Nikkei average’s most recent high was 39,426 yen, reached on the 27th, an 18% increase since the end of last year. If we apply the estimate as is, it is possible that nearly 15 trillion yen worth of yen selling has occurred since the beginning of the year.

Although 15 trillion yen worth of yen selling is less than the 20.3295 trillion yen in 2022, which recorded the largest annual trade deficit ever, it is equivalent to 8 months of the most recently announced monthly trade deficit in January. do.

While pressure to depreciate the yen continues to increase, the dollar’s price movements have been slow for the past six months, capping at the 150 yen level due to a strong sense of caution about yen-buying intervention. The government’s “defense line” that the market assumes is around 152 yen, and individual investors who often adopt a yen selling strategy will “turn around and become net sellers in the late 150 yen to 151 yen range” (FX company executive). He says, “See more.”

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As a result, the pressure on the yen to depreciate due to speculative speculation that has gone nowhere has spilled over into currencies other than the dollar.

As of this week, the Swiss franc has hit an all-time high of 171 yen, the Canadian dollar has hit a 17-year high of 111 yen, the pound has hit a low of 191 yen, the Australian dollar is in the low 99 yen range, and the NZ dollar is in the mid-93 yen range. This is the highest price in nine years since 2015. The euro also remains at the 162 yen level, the highest level in three months.

Keiichi Iguchi, senior strategist at Resona Holdings, said, “The yen is generally considered to be the weakest among major currencies due to expectations of continuous interest rate hikes from the Bank of Japan receding.The dollar is not likely to rise due to concerns about intervention. “It has become easier for speculative yen selling to escape to other currencies.”

According to the activity status of the non-commercial sector of IMM currency futures compiled by the U.S. Commodity Futures Trading Commission (CFTC), as of the 20th of this month, speculative yen selling has reached the highest level since November last year, which was the highest level in six years. It swelled up.

In the market, one source from a foreign bank said, “If there is a situation where the yen is bought as a result of unwinding, it will be a good place to sell the yen.”

(Shinji Kitamura Edited by Hiroshi Hashimoto)

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