Nikkei: Yen succumbing to midsummer surge

From the FXWW Chatroom: TOKYO — Conventional market wisdom says the yen tends to heat up along with summer’s sizzling temperatures. And this seems to hold true this year.
The Japanese currency strengthened to around 99.50 to the dollar overseas at one point Tuesday despite the dearth of apparent incentives. Statements from monetary authorities helped bring the yen back across the 100-to-the-dollar barrier Wednesday. But the surge was a shock for traders who had seen the currency remain tame around the 101 mark since the beginning of August.
In five out of the past nine years, the yen ended August stronger than July, and this August could mark the sixth such occurrence in the decade.
Currency demand particular to this time of year accounts for part of the traditional climb. U.S. Treasury bonds pay interest each August. This year’s payment came Monday. Japanese investors held $1.1 trillion in treasuries at the end of June, spelling sizable selling of dollars for yen as payments are repatriated, according to Central Tanshi FX’s head of markets.
Japanese exporters are also inking exchange contracts to bring revenue home in time for July-September quarter earnings reports. This trade typically picks up ahead of Japan’s midsummer Bon festival and builds toward the end of August.
But with the yen now at 100 or so to the dollar, the currency is stronger than even many conservative companies have predicted for fiscal 2016 on average. Because buying the currency at higher-than-predicted rates can weigh on earnings forecasts, exporters’ demand for yen is not yet in full swing, according to Naohiro Nomoto of Bank of Tokyo-Mitsubishi UFJ. The currency could thus climb further as these companies begin to lay out their trades.
Summer obsession
Other, more irregular concerns also play into summer foreign exchange shifts. Last year, turbulence in Chinese financial markets spurred buying of the yen as a safe-haven currency.

MAKOTO NAKANISHI, Nikkei staff writer.

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