Thursday, June 24, 2004

The global economy always gives with the right hand and takes with the left.
The yen continued its recent rally in European morning trade on Thursday amid continuing optimism over the scale of the Japanese economic recovery.

Tokyo's Nikkei 225 jumped a further 1.4 per cent overnight, but for once this was a secondary factor with strong economic data providing the main bulwark for Thursday's yen strength.

. . . data from Japan's ministry of finance showed Japanese investors selling a net Y308bn of foreign bonds in the week to June 18, the largest such flow since April.

The data tentatively suggests that sharply rising Japanese government bond yields may discourage Japanese investors from going abroad in the search for yield, and potentially undermines the counter-argument that growing confidence in domestic recovery could encourage the Japanese to invest more overseas, a trend that has occurred in the past.
The General reported last week that the Japanese public was shifting out of Japanese government bonds and into stocks. Now it looks as if they're shifting out of foreign bonds as well. If a growing Japanese economy means more Japanese capital stays home, the dollar may be heading southwards a lot sooner than we think.

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