The 5-day performance of the USD/JPY currency pair has it trading up 1.85% at 112.9290. The 1-month performance of the USD/JPY pair has generated significant momentum for dollar bulls as evidenced by the 8.36% appreciation we have seen. The USD started at 104.1540 and is now up by approximately JPY8.60. That the USD is showing resilience and bullishness is to be expected given the DXY’s performance of late.

The US dollar index is a broad measure of the greenback’s performance against a weighted basket of currencies. The JPY comprises 13.6% of the DXY and so it is safe to say that a strong USD appreciation will naturally impact negatively on the USD/JPY. The most heavily weighted currency in the DXY is the EUR at 57.6%. Now, we are seeing the Yen being sold en masse as it races away from that vaunted level of 100:1 recently, towards 113.

Massive Yen Selloff by Life Insurers has USD on the Offense

One of the biggest drivers of USD strength is the election of Donald J. Trump to the Oval Office. Trump, a political outsider, came from behind to steal victory from the jaws of defeat. His shock appointment was forecast to send equities markets into a tailspin and result in a massive loss of confidence for the US economy. All the hype appears to have been grounded in baseless speculation and we are now seeing an upsurge in equities and a resurgent USD. While US markets are closed for Thanksgiving, sentiment remains strongly bullish for the greenback. Life insurance corporations are viewing the JPY as persona non-grata at this juncture. They are expected to sell some JPY3.8 trillion in the hopes of a strongly appreciating USD.

The USD/JPY currency pair is now trading near 8-month highs and this is unsettling JPY bulls. Japanese investors were largely expecting the current Obama-style administration to continue unabated but this has not happened. A major shakeup in Washington is about to get underway and it is impacting Wall Street and main street in a big way. Consider that on Tuesday 8 November 2016, the USD/JPY pair was trading near 101. That figure has all but evaporated for the short to medium-term.

How well has the JPY been performing in 2016?

The largest 9 Japanese life insurance companies has dollar-denominated assets valued at approximately $465 billion (64.5% of $722 billion). A big part of the reason for this strong investment in USD assets is the risk of a Brexit-riddled world and the recent US presidential elections. The widespread geopolitical uncertainty in Europe and the United States remains in effect. Post-Brexit, Japanese life insurance companies were quick to short-sell their sterling-denominated assets. Much the same was taking place in the run-up to the US presidential election. We are likely to see a rush towards dollar-denominated assets as we approach the inauguration of President-elect Donald Trump.

Currency strategists at leading investment banks, JPMorgan among them, are still uncertain about economic prospects vis-a-vis the United States. Forex hedging from Japanese life insurance companies is likely to continue on the proviso that the yen will be trading at 95 – 115 to the USD. Meanwhile, the JPY is proving to be a bugbear for the Nikkei 225 index. The Nikkei 225 was last trading at 18,381.22, up 0.26% of 47.81 points. As expected, the performance of the Nikkei 225 index moves in the opposite direction to the strength of the currency. Over the past 1-month period, the index has rallied from 17,391.84 on 26 October to 18,381.2 to on 25 November.

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