MOF Purchases Increases In July

Weekly MOF (Ministry of Finance) flows show Japanese accounts significantly stepped up their foreign asset (mostly bonds) purchases.   The data out today covered the last week in July.  Japanese investors bought JPY1.25 trillion (~$14.5 bln) of foreign assets.  This brings the total for the month to an impressive JPY5.7 trillion (~$66 bln).  This follows June (was a sum of the weekly time series) purchases of JPY3.4 trillion and brings purchases of the last three months to JPY11 trillion (~$127 bln).  Foreign investors returned to the buy side in July (JPY981 bln) after have been net sellers of a combined JPY2.7 trillion in the May-June period.    Clearly these portfolio flows have been insufficient to weaken the yen.   Over the last three months, the yen has been easily the strongest of the G10 currencies, appreciating 8.5% against the dollar, more than twice the 3.5% rise of the Swiss franc, the second strongest G10 currency.   The DPJ government, including Prime Minister Kan himself, had previously seemed to be more verbally aggressive about desiring a weaker yen.  If intervention is best thought of as an escalation ladder, ranging from mild verbal signals to coordinated material intervention, Japanese officials still seem to be on the low rungs, but the tone of the verbal comments have increased as the JPY85 area has been neared.  Many players are a bit cautious but appear to be drawn to it.  A weak US employment report tomorrow that sees a further decline in US interest rates could provide the necessary cover.