Searching for yield

Analysts point to an outflow of domestic Japanese money as a factor weighing on the yen, as investors there chase higher yields elsewhere. “Japanese individuals are fed up with zero interest on bank deposits,” says Masaaki Kanno, managing director at JP Morgan in Toyko.

“Japanese investors are understandably attracted to much higher yields available offshore,” says Sean Callow, senior currency strategist at Westpac Institutional Bank in Singapore. “For instance, U.S. two year Treasury bonds offer almost 4 basis points of pick-up over two-year Japanese government bonds, while New Zealand offers a huge 5.90 extra basis points. Japanese demand for bonds such as New Zealand’s has been very robust — not just from institutions, but also from retail, individual investors.”

In recent weeks, speculators have jumped on the dollar/yen bull trend bandwagon as well. Callow noted that the recent Committment of Traders data, released by the CFTC, revealed that large speculators had built up their highest long dollar/yen futures positions since 1999.