Market Analysis

Yen Bears Vulnerable To Obon Jitters

Japan may have celebrated Mountain Day last Friday but the first few days of this week (13-15 August) will also incorporate Obon (the Festival of Souls) which, although not an official holiday, is observed by a lot of Japanese. Writing on Friday, US firm Morgan Stanley noted that “data from Japan’s Ministry of Finance shows that net buying in non-yen bond markets by investors in Japan falls around the Obon festival.” And if the net buying of non-yen bonds is lower, the currency market might infer that investors might have less yen to sell for other currencies during Obon.

Ordinarily that might not matter but given the recent flight into the yen as a safe haven currency as a consequence of elevated tensions in the Korean peninsula, it might have a bearing on trader mentality. Especially when data released on Friday for the week ending August 8 by the US Commodity Futures Trading Commission showed that although the net short yen position held by speculators had shrunk by US$1.8 billion from the previous week it was still equivalent to US$10.85 billion. Traders will have their own views on whether or not there remains a stale short yen position out there given the price action seen towards the end of last week. As for the yen bears, they may be hoping that the end of Obon will mean Japanese investors return to buy non-yen bonds.
Written by Neal Kimberley, External Currency Analyst.