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Japanese Outflows Help U.S. Stocks

David Becker
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The dollar has broken out against most major currencies but the rise against the yen reflects not only an increase in the interest rate differential, but that domestic investors are purchasing foreign assets. Money is moving out of Japan and into the United States buoying the greenback against the yen but also against the Euro the Sterling and the Aussie. Economic number are beginning to pick up steam, but it remains to be seen if the consumer can increase following solid numbers from businesses.

The Japan August Flash manufacturing PMI rose to 52.4 vs. expected at 51.5 and 50.5 in July. It still remains lower than March but the highest since April, just after the hike in sales tax. Japanese manufacturing business sentiment is showing some recovery even though private consumption remains weak. Japan’s July supermarket sales dropped 2.1% y/y, four straight months of decline, reportedly due to rising inflation and stagnant nominal wages.

Japanese weekly flow data shows local investors continue to increase purchase foreign assets. For the week ending on August 15, they purchased net 659.8 billion yen of long term non-Japanese bonds and the highest amount of short-term securities in 4-years, 159.9 billion. Foreign investors bought net 223.7 billion of long-term Japanese bonds, seven straight weeks of net purchases and the longest stretch since September 2008.

Although bonds in Japan are being scooped up, purchases of Japanese stocks remains subdued, at 87.7 billion, a weak rebound following a net sale of 585.2 billion yen in the last week. The outflows are moving to the U.S. which is helping the S&P 500 forge toward new highs.

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