Goldman Sachs: Positioning in JPY amid anticipated repatriation flows

Goldman Sachs analyzes the impact of anticipated Japanese repatriation flows, particularly from major institutions like GPIF and financial firms shifting allocations away from foreign bonds. While expectations lean toward a domestic stock and bond reallocation, there is little evidence yet of substantial foreign bond repatriation, making JPY strength potentially premature.

Key Insights:

1️⃣ Major Institutional Shifts 📊

• A large Japanese financial institution plans to reduce exposure to foreign bonds after consecutive losses.
• GPIF’s five-year portfolio review (expected by March-end) could reverse previous shifts into foreign bonds, favoring domestic stocks and possibly JGBs.

2️⃣ Market Expectations vs. Reality ⚖️

• Markets expect repatriation flows into domestic assets, strengthening JPY.
• However, weekly data show no clear evidence of significant foreign bond selling yet.

3️⃣ Trading Implications 💡

• If repatriation flows materialize, JPY strength could be more persistent.
• If flows fail to emerge, Goldman sees an opportunity to position for a tactical reversal, meaning JPY could weaken again.

Conclusion:

Goldman acknowledges the case for JPY strength from anticipated repatriation flows but sees no concrete signs yet. If flows do not accelerate, the bank prefers positioning for a tactical JPY reversal rather than chasing further upside.

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This article was written by Adam Button at www.forexlive.com.