Japan fund repatriation to curb dollar speculators
By Chikafumi Hodo
TOKYO, Feb 10 (Reuters) - A need among Japanese investors to repatriate funds before the fiscal year ends on March 31 is expected to overwhelm speculative dollar buying by offshore operators and push down the dollar, analysts said on Thursday.
Yen carry trade -- borrowing cheaply in yen to buy mainly U.S. assets -- has been a key force driving the yen lower and the dollar up in the last two weeks, but the trade may lose its lustre if the dollar fails to advance beyond 110 yen, they said.
``The recent dollar rise was backed by speculative moves, mostly by yen carry trades,' said Taisuke Tanaka, global foreign exchange strategist at Credit Suisse First Boston.
``But if the dollar's advance is limited, I'm sure these yen carry positions will start to be unwound,' Tanaka said.
Speculators also conducted the carry trade to try to force dollar buying by Japanese investors known to be over-hedged in U.S. assets.
Many Japanese increased their hedge ratio in late 1999 in the belief the yen would appreciate above 100 against the dollar. But many investors have been forced to unwind their large hedge positions as the dollar has risen sharply recently, dealers said.
Dealers said the carry trades by speculators could end when they determine the trades are no longer profitable.
Speculators with yen carry positions need to see the yen deteriorate by five to six percent over two to three months if they are to make a profit, Credit Suisse's Tanaka said.
Many, who began the yen carry trade at around 102 yen earlier in the year, took profits when the dollar rose to between 107.50 and 109.50 yen, he said. Those who initiated carry trades more recently at around 107 yen want to see the dollar above 112 yen, Tanaka said.
REPATRIATION TO IMPACT ON DOLLAR
Dealers said the speculative force may not be enough to push the dollar up to those levels. On the contrary the dollar may begin to lose some of its recent gains as fund repatriation get under way with the end of Japan's fiscal year on March 31.
Japanese investors have bought a net 9.2 trillion yen worth of foreign bonds between April 1999 and January this year.
``We've already seen some repatriation by life insurers, but many were waiting because the dollar was still bullish. Once
investors judge the current uptrend is over, they'll start selling (dollars),' a senior European bank dealer said.
A view that Japan's recovery is not yet solid -- especially since Economic Planning Agency Minister Taichi Sakaiya said on Sunday a tehnical recession was seen for the last half of 1999 -- hurt the yen this week. That perception has now been priced in.
The dollar was expected to trade in a range of around 104 to 112 yen until the end of March, said Mitsumaru Kumagai, senior market analyst at Industrial Bank of Japan.
``I think Japanese investors will step up efforts to repatriate from late February. Fresh fund outflows from Japan are expected to thin out,' Kumagai said.
Finance Ministry data on Wednesday showed Japanese investors unloaded foreign bonds for a third month in a row. They sold a net 476.0 billion yen worth of foreign bonds in January, after selling a net 202.3 billion yen in December.
>>>I've read also that the Treasury's notice to buy in
>>>the 30-year bonds may be an attempt to prop the dollar
>>>in face of the repatriation and the Japan government's
>>>plan to borrow from their banks. |
