The Japanese yen has been on a wild ride ever since the 2011 T?hoku earthquake.  Now, as USD/JPY hovers around 80, it’s time to sell the yen (by buying USD/JPY), stated a Credit Agricole report.

Soon after the earthquake first struck, the yen soared because investors bought it in anticipation of repatriation flows.  After the yen rally took USD/JPY to an all-time post WWII low of 76, G7 intervened to weaken the yen. 

In the weeks that followed, the yen plunged over 10 percent against the dollar to USD/JPY 85.  During that period, repatriation flows wasn’t a big factor and global risk appetite was unusually healthy.

This trend reversed on April 7 – coinciding with the Bank of Japan monetary policy statement – and the yen has now strengthened to USD/JPY 80.  Two factors that drove the rally were repatriation flows – which finally became a significant force – and portfolio flows to Japanese financial assets.

At this point, Credit Agricole recommends selling the Japanese yen again.

Through its analysis of data sources, Credit Agricole believes the “JPY positive repatriation flows as likely to prove transitory in the current environment.”  Similarly, the portfolio flows is expected to “quickly moderate once bargain hunters are satiated.”

Contrastingly, Japan’s loose monetary policy remains in place.  In fact, the economic damages from the earthquake have forced the Bank of Japan to further extend liquidity at a time when most central banks around the world are tightening.

There is one more reason to buy USD/JPY at 80: if the yen strengthens further – to below USD/JPY 80 – the Bank of Japan may intervene again.

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