FX Alpha 16 July 2013

JPY- Even more to be worried about?

Purchases of foreign bonds by Japanese investors are not a risk to JPY exchange rates. However a slowdown in emerging market economies most definitely is.

Last week the FX market was thrown into turmoil following Bernanke’s comments regarding the outlook for monetary policy in the US. The reaction in USD-JPY was unforgiving, falling by 3 big figures from 101.50 towards 98.50. However, what investors seemingly missed was that in the same week, Japanese investors finally bought foreign bonds to the tune of 973 billion JPY. The question is whether this development marks the beginning of the so called wall of money and what are the implications for JPY exchange rates.

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