The 1 April each year marks the beginning of Japan’s fiscal year which means Japanese companies send money back to Japan which results in Yen strength. Recently one of my students brought to my attention an article on Investing.com by Kathy Lien where Lien commented on the recent Yen strength we saw in March and linked this partly to repatriation flows which she said were mostly completed (View article here.)

Any successful trader knows that fundamentals move the market and that technicals simply provide price levels and price action used to identify where to execute trades in line with one’s macro-economic bias. Due to my highly aggressive goal to conquer this game of Kings and Queens I believe that trading off another analyst’s opinion is limiting and is the same as trading a signal provided by the many signal providers in the forex market. Regardless of whether the analyst or signal provider is correct or not, it does not help me build a case of my own and it certainly does not help me develop a professional opinion that leads to me forming a bias and developing alpha.

My first challenge is Lien’s comment in the article regarding how the Yen traded in previous years. Specifically, her comments about how the Yen traded in 2016 because I remember the Yen strength from last year very well. It goes without saying that my goal for April is to generate a good return while ensuring that my alpha is met with good beta which really means the return is not generated as a function of risk but rather due to a higher move in my long or short trade due to me trading in the right direction and letting my winners run. Therefore, I decided to go and do some research of my own so I can form a professional opinion I would be happy to present to a client if they were investing in my managed fund.

Now I would be a total hypocrite if I was to simply pass on my opinion to you the reader with no explanation of how I arrived at that conclusion. Therefore, to ensure I am giving you a chance to do your own research and develop your own bias, I am going to share the steps I followed.

Firstly, I observed the movement of price in the USDJPY cross rate during April from 2008 to date. Yen strength was observed in seven of the nine years I reviewed with the exceptions being 2008 and 2013. In the years where Yen strengthened, the move occurred on the following days:

2009: Tuesday 7 April – 28 April 581 pips (week after NFP)
2010: Monday 5 April – 19 April 310 pips (week after NFP)
2011: Thursday 7 April – 21 April 387 pips (Day before NFP)
2012: Monday 2 April – 16 April 264 pips (Start of the month)
2014: Friday 4 April – 11 April 279 pips (Day of NFP)
2015: Wednesday 1 April – 3 April 142 pips (Start of the month)
2016: Friday 1 April – 11 April 487 pips (Day of NFP and start of the month)

While the above data does indicate Yen strength entering the market during April, especially in relation to when NFP was released, it cannot be viewed without taking macro into consideration. Therefore, I reviewed all the BOJ and FOMC monetary policy statements for March and April from 2008 to 2016 to determine whether the BOJ and FOMC were causing Yen strength or weakness because of a change to monetary policy. I also want to identify why the Yen did not strengthen during 2008 and 2013.

As we know 2008 was a tough time for America due to the burst in the housing bubble that started in 2007. In March 2008, the FOMC reduced their target for the federal funds rate by 75 bps to 2-1/4 percent and announced that the FOMC would expand its securities lending program which resulted in the yield of the US10Y rallying from 3.42% to 4.31% from March until June 2008. The BOJ made no policy change at their meeting and the uncollateralized overnight call rate remained at around 0.5 percent. The Yen rallied from 95.77 in March to 110.50 in Aug 2008 on the back of the FOMC policy action.

On the 4 April 2013 the BOJ introduced “quantitative and qualitative monetary easing” after having maintained their uncollateralized overnight call rate at around 0 to 0.1 percent which saw the Yen rally from 92.566 in April to 103.734 in May 2013.
2008 and 2013 were the only two years where the monetary policy implemented by either the FOMC or the BOJ resulted in Yen weakness. At all the March and April meetings for the years where Yen strengthened the BOJ and FOMC kept their respective rates on hold with no major policy changes.

Therefore, based on the above data, one can deduce that when there was no reason for the market to price in a policy change by the BOJ or FOMC Yen strength would occur at the start of the April, on the first Friday of the April or at the start of the week after March NFP though in 2008 and 2013 when the BOJ or FOMC communicated they would be taking actions that would likely result in Yen weakness, Yen strength was observed during March and in both cases Yen strength began on the 12 March (Yen was strong all of March in 2008 though profit taking was observed from MM1 on the 11 March with significant strength entering the market on the 12 March leading up to the 17 March when the FOMC released their March policy statement as discussed above.)

These are significant observations because if we now fast forward to 2017, this is the first year since the collapse of the housing market in 2007 where the FOMC are communicating a hawkish rhetoric. Yes, the path towards contractionary monetary policy started in 2015 when the FOMC projected four hikes in 2016 though as we all know their dot plot of four hikes in 2016 was reduced in early 2016 due to global risk and an overshoot in their inflation targets which was brought about by the decline in energy prices in 2015.

Therefore, it is plausible to consider that the Yen strength observed in March was a combination of a flight to safety due to concern over the Trump Administration’s ability to pass promised fiscal policies after the withdrawal of the Affordable Health Care Act and repatriation flows IF the market believes that the FOMC are going to raise rates two (or three) more times this year.

So, then we need to identify if the market believes this or not using fundamental data.

The first fundamental tool is the FOMC. In every one of the FOMC statements the Fed have clearly stated that the future rate path is data dependent and that the data they are watching is inflation reaching their target of 2% and full employment in the labour market. If you read the speeches out of the Fed last week all the members see two hikes as appropriate for 2017 and that’s after the recent “Trump Dump”. It is important to note that in none of the FOMC statements released since November 2016 have the FOMC mentioned taking fiscal policy into account when considering monetary policy action so therefore, while we may see a market correction should Trump fail to pass the tax cuts and fiscal spend he has promised, we would be far better off paying attention to inflationary and labour market data points as an indication of future rate hikes.

The second tool is the Fed Watch Tool which currently indicates that 58.7% of the market have priced in a hike at the June meeting and 58.9% of the market have priced in a hike at the December meeting. That leaves quite a bit of the market not priced in and a few meetings in between June and December that could become live.

The third tool is a website called eFXPlus, a tool that lets you view major banks’ FX trade positions and forecasts, according to eFXPlus 82% of 29 major banks have forecast UDJPY trading higher at the end of Q2 with the lowest market price forecast at 112.00 by Barclays and the highest market price forecast at 122.00 by BOFA Merrill Lynch. In terms of open positions Crédit Agricole, BNP Paribas and BOFA Merrill Lynch are currently long USDJPY at 111.85, 111.30 and 113.35 respectively and Morgan Stanley has placed a buy limit order at 109.50. So big money, smart money, is bullish on USDJPY heading into Japanese fiscal while they are fully aware of the financial flows that take place at this time of year.

The forth tool is the Commitment of Traders Report which shows the net non-commercial positions on USDJPY as net-bearish. I do note a decrease in Yen short positions for the second week in a row and a slight uptick in Yen long positions.

It is important to note that Yen strength entered the market on the 12 March 2017, which match the dates Yen strength entered the market in 2008 and 2013. I cannot confirm if this was due to repatriation though seeing as there was a reason to price in policy change in 2008, 2013 and now in 2017 I believe there is a possibility repatriation could have taken place in March due to the current rate path of the FOMC and that if this is the case Dollar will remain strong and Yen will remain weak leading up to NFP next Friday.

Should NFP be negative or any of the data points used in the NFP model lead the market to believe NFP will be poor I believe we will see Yen strength enter the market – be it from repatriation or an unwinding of the reflation trade.

In conclusion, I will look to buy dips on the Dollar and USDJPY leading up to Friday should price action indicate that the market is in line with my fundamental bias. I have provided some technical analysis below.

Please note that I am not a macro economist though I am doing my very best to understand the subject and the only way to do that is write these types of articles and do loads of reading, researching and home work everyday. I welcome all comments and feedback and appreciate you taking the time to read this post. I spent seven hours writing it. Would have been shorter if my Google Chrome didn’t bomb out with no saved version on the first draft three hours into the article 15 minutes away from being complete 😛 Note to self – write everything on Word first and save at regular intervals.

Peace.

USDJPY Daily

Market is bearish. Price is bullish. Price came off of the monthly target though failed to break above 112 and was sold at the role reversal of the previous range. Due to price being so low I expect price to open at a bullish monthly pivot point for April.

USDJPY H4

Market is sideways. Price is bearish. Note the double bottom at last week's WS1. Currently price action indicates that bulls will enter in the fib zone - note that 111 is the 61.8% fib of the double bottom higher high. With Friday being the end of the quarter and the end of the week profit taking was expected and could continue into Monday's trade. I am paying careful attention to new weekly pivots and confluence with price action and fib support at 111. Further support is eyed at 110.50 though if price breaks 111 then I would expect to see price head to 110 while keeping an eye on the double bottom as a possible bottom of a new range.

Nikkei Daily

Market is sideways. Price is bullish though note the divergence. Price is currently at support with further support eyed at last month's MM1 and the top of the range eyed at last month's MR1/ MM4.

Nikkei H4

Market is sideways. Price is bearish though the stoch is close to oversold. Price is at the bottom of the range marked by last week's WS1 with the top of the inside range at last week's WPP, the top of the second inside range at last week's WR1 and the top of the outside range at last week's WM4. I find the price action on the US10Y and Dxy more important than the Nikkei though it is still nice to use for correlation with USDJPY.

Dollar Index Daily

Market is sideways and price is bullish. Profit taking from MM1 drove price up just short of the MPP target with price closing at the 50% fib. The green zone is the fib of the bullish move. I am going to pay attention to new monthly pivots and any confluence with this support zone and bullish entry zones for the month. Further resistance eyed at the 61.8% and 78.6% fib.

Dollar Index H4

Market is starting a bullish trend. Price is becoming bearish. With price being at the weekly bull target (after having moved off the weekly bear target) I expect some profit taking into Monday's trade. Support is eyed at the 38.2% and 61.8% fib of the bullish move as well as the 21 EMA. I will be paying attention to new weekly pivot points and any confluence with support and bullish entry zones for the week.

US10Y Daily

Market is sideways. Price is bearish. Top of the range eyed MR1. Bottom of the range eyed at last month's MS1 and MM1.

US10Y H4

Market is sideways. Price is bullish. Price closed at the bearish trend line on Friday and in the red resistance zone that highlights the top of the range on this chart. Support zones highlighted in green and resistance zones highlighted in pink. Price action on this chart indicates that price is going to move up to the top of the range. I will be paying attention to the new weekly pivot points and confluence of bear zones with last week's WR1 and WR2. I will only buy USDJPY if price action on this chart indicates bearishness.

16 thoughts on “Yen Repatriation over the last nine years”

  1. nuno cabruja says:

    awesome work mr Gandalf thank you

    1. Ryan Gandalf van Jaarsveld says:

      Thank you Nuno!

    2. Kudzai Nyamukacha says:

      Top notch stuff

      1. Ryan Gandalf van Jaarsveld says:

        Thanks Kudzai

  2. Paul P says:

    Very impressive Mr. Ryan! Gave me a lot of insight, certainly made whole Yen repatriation concept a lot clearer. Thank you and good luck 🙂

    1. Ryan Gandalf van Jaarsveld says:

      My pleasure Paul. Let’s see what happens 🙂

  3. Agostinho Santos says:

    Ryan , no doubt you have hungry to to conquer this game of Kings and Queens, you are doing a excellent work.
    Preparation is the mother of success, your work it is very clear and with a great structure.

    hope your conquest million of pips 🙂

    5 stars

    1. Ryan Gandalf van Jaarsveld says:

      Agostinho thank you for your feedback and your kind words!

  4. Maryna Murray says:

    Hey Ryan, I think too much hype is made of Japan’s repatriation and by simply trading the charts one will soon enough see when JPY weakens/strengthens with or without repatriation. I sold USDJPY the whole of last year and again this year simply by “analyzing” the charts. All economic events does, is to put speed in the market and as a bear on USD and from what I see on the USDJPY chart, the USD BEARS have been the winner on this pair in 2016, moving an average of 2250 pips vs 1185 for bulls in 2016, but bulls have already given back another 873 pips in 2017 and way behind the bears. One always has to ask “who is in control” – bears or bulls and the bears have been in control since Jan 2016. In Forex one only needs to “score” 1 pip more than the other “party” to make profit and the bears have scored significantly more pips than the bulls. Personally, I don’t trade on ‘hearsay” and why I’m a bear on USDJPY. I’m using this pair as an example simply because the topic is Japan’s repatriation. Also, given the “internal turmoil’ in GBP and EUR with Brexit and so-called strong USD, I have to ask why EUR and GBP is not at parity already? In 2016 there were strong “rumours” that EUR was going to be at parity by end of 2016 – really? In fact, USDJPY broke parity last year! By the way, I’m not agreeing with Kathy Lien or anyone else for that matter and just my own observations. I need to see bulls in control to become a bull on USD and I don’t see bulls in control yet. For me to become a short-term bull, I will need to see at least, the 115.10 level broken on a Daily chart to show that the pendulum has moved in favour of the bulls. I see USDJPY move to 109.30 and even parity by year end, unless the Reserve Banks step in. Dollar Index already fell below 100 as recent as 27 March. Not good for bulls.

    1. Ryan Gandalf van Jaarsveld says:

      Thanks for the feedback. My goal is to trade client money – big client money, $100 Million accounts – if I sit across from a client with that kind of money I better know what I am talking about and I better have some solid alpha. If I just tell the client I am going to trade their money based on price action I am probably going to be shown the door. Fundamentals are more than just news that makes the market move faster – macro is what causes the market to move full stop. If next week’s data leading up to NFP and NFP is ripper strong the US10Y Yield is going to move higher and that is going to result in Yen weakness and Dollar strength. If not then the US10Y yield will move lower, Yen will strengthen and Dollar will weaken. It is the data that will determine that. You saw the massive move when Trump won the election – that was off of fundamentals. Treasuries tanked sending the Yield sky high which caused the Dollar to strengthen and Yen to weaken because the market saw an increase in inflation impacting the yield they were earning in Treasuries and so they got out. Knowing that gives a trader an edge and allows them to stand out from other traders competing for the same client money. After having gone through all the meeting statements for the March and April meetings over the last nine years I have a massive appreciation for how long it has taken for the US economy to arrive at current employment and inflation levels. I also have a massive appreciation for how much struggle Japan has gone through and is going through to get out of disinflation and all the efforts they have gone to and are going to to try and revive their economy. If I am sitting in a boardroom and someone with a ton of cash asks me my opinion on the US or Japanese economy I better be able to respond with an answer that is deeper than simply saying I sell at resistance because I am a bear or that the market is bearish because we can quite clearly see Bears made more pips last year (not attacking your comment). Clients pay a professional trader to make decisions and it is knowledge and information that informs those decisions. It’s the traders who have this knowledge, this alpha, this edge and know how to use it to turn a profit with as little risk as possible that win the big accounts. When you see speakers on Bloomberg being asked about a currency pair their answer is informed and educated. This portrays an image of professionalism which results in more clients investing more money. That is the goal. Whatever it takes to be seen as the smartest person in the room – that’s what I have to do. I’ll also be the hardest working person in the room. And $100 Million is chump change compared to the money that is out there. It comes down to the golden rule – he who has the gold makes the rules and if the rules say you got be whicked smaaht to make it in this game then please believe me I’m going to be wicked smaaht! Having said all that, each trader has their own approach and each trader has their own goals. If it works keep doing it – if not then stop, look and correct. 🙂 Haven’t seen you around lately, hope you are well!

      1. Maryna Murray says:

        Hey Ryan, I’m great and have a contract with Investec as a Forex Analyst in their Asset management dept. and fortunate to be able to trade and work from home and have an office at Investec. I’ve stopped posting trades on Forex.Today after I’ve seen all the trade idea’s that are being copied and posted from other external websites and no moderator at Forex.Today. Investec also assisting me in obtaining full registration. I used all my posts on Forex.Today and my live results as a reference for Investec and they offered me this amazing opportunity. I will start posting trades again in the future on Forex.Today. This is going to be a super 2017!

        1. Ryan Gandalf van Jaarsveld says:

          That doesn’t change my opinion on why fundamental analysis is important and that a trader needs to have alpha. Good for you though! I am sure you deserve it and will make the best of it.

  5. fmarques says:

    Tks Ryan. Great article. Best

    1. Ryan Gandalf van Jaarsveld says:

      Thanks!

  6. jean janssen says:

    thank you for the article, very informative for newbies like me.

  7. Arlissa Thiedt says:

    Hey, Ryan,

    Very good, well researched article. I’ve been looking into repatriation of the Yen and couldn’t find a solid resource. I don’t know how to research the market yet, but reading this gives me every idea I need to start creating fundamental bias. I know my post is a couple months old, but your work is still important to beginner traders. I’m working on my fifth month trading forex on a demo account and I’m glad to find a reliable resource outside of Wayne McDonell’s webinars. Best of luck to achieving those funds. It’s also a goal of mine, and now I have direction with it. Thank you so much for all the work and effort into putting this together!

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