The Yen repatriation trade appears to be back in play

The Japanese yen has surged higher during today’s Asian session, and whilst it is hard to pinpoint the exact reason it may be a combination of factors. Given that sentiment has improved thanks to US authorities providing further support for regional banks, we’d have expected the yen to remain on the ropes like it had overnight. But that is not how today’s session has played out.

Fiscal stimulus and fiscal year end appear to be key drivers of the yen strength

Earlier in the session we heard Japan’s Finance Minister announce a ¥2.2 trillion stimulus package from the budget reserve, and as that is inflationary then it puts upwards pressure on the BOJ to move away from their negative interest policy sooner than later.

But we could also be witnessing the Yen repatriation trade, where large corporations move funds back to Japan ahead of the end of the fiscal year on March 31^st. It’s also possible the announcement from the Finance Minister prompted some firms to move funds over sooner, and that still leaves over three more trading days left in the financial year for other forms to follow suit. Overall, traders may want to err on the side of cautions being too short the yen despite the pickup of sentiment, as the repatriation of funds combined with the usual month-end flows can make for some tricky price action.

How markets are reacting

The yen is the strongest major and trade higher against all its major peers. USD/JPY is close to handing back all of yesterday’s gains. Although it is trying to build a base around 130.50, around a series of previous swing lows.

We note that RSI (2) is overbought which warns of a near-term inflection point, and the retracement on USD/JPY is relatively deep compared with the US-JP 2-year yield. SO we see the potential for a bounce from current levels, but whether it turns out to be a minor rebound ahead of a break to news lows or a more significant rebound remains to be seen.

AUD/JPY 1-hour chart:

AUD/JPY has only pulled back slightly from yesterday’s highs – and is likely supported by the underlying risk-on tone seen yesterday. It is trying to form a bullish trend on the 1-hour chart, although the 87.58 low and 100-bar EMA are capping gains. A break above 87.60 assumes bullish continuation, whilst a break beneath the 87.15 low (or 87.00 handle to be safe) assumes the trend has reverted to the downside.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.