Research Team at BBH, notes that there has been a surge in Japanese portfolio capital outflows and it appears that Japanese investors were not repatriating their foreign holdings as the safe have hypothesis would suggest, but buying prodigious (record) amounts of foreign bonds in March.
"Japanese investors were also consistent, even if less dramatic, buyers of foreign shares. There are some seasonal patterns at the start of the new fiscal year (April 1) that may be distorting the recent weekly data, which is why we note the larger pattern, which does not suggest the yen has been bought as a safe haven.
We suspect that flows that are less transparent, like repatriation of foreign earnings by Japanese or unwinding of hedges by foreign investors liquidating Japanese equities that have fallen in price, or Japan institutional investors hedging their currency risk (buying yen) played a role earlier this month.
Using the futures market as a proxy for trend-following and momentum speculators, a buyer of yen is clear. As of around 10 days ago, speculators in the futures had amassed a record long net and gross yen position. However, the flows in the futures market seem to small compared with the spot market to be a key driver. That said, we recognize this as a dynamic process and can feed it on itself, with money management considerations driving decision-making, allowing a move to take on a life on of its own, as it were.
Japanese markets were closed today, but the yen's strength has continued. The dollar traded below JPY107 for the first time since October 2014. The JPY106.60 area may be the next technical target. The market may draw more cautious if the JPY105 level is approached as some observers tout intervention there, though we suspect that such claims mistakenly see BOJ action (that would be ordered by the MOF) as defending a fixed level."