Beware Mrs. Watanabe

Must read from FTAlphaville quoting research on Japanese investment flows ("Mrs Watanabe") touched off by the advent of Abenomics. It is so vital to understand the dynamics here.  The Bloomberg article on Mrs. Watanabe linked to from the FTalphaville post is also interesting. While Aussie debt selling helps explain some of the AUD weakness despite very strong risk appetite that often supports AUD, it is also worth noting that gold and commodities have been weak as well - another traditional drag on AUD.

What is very strong, however, is Australia equities - and I charted those (the main S&P/ASX 200 Index) versus AUDJPY in below chart (Chart created courtesy of Bloomberg) - makes me wonder if Mrs. Watanabe is rotating into equities. Realize that private Japanese savings are on the order of 100% of ... US GDP - so where these funds are flowing is important to understand. And it doesn't mean that Mrs. Watanabe is right - but she is big and can move like a herd of elephants, as the spectacular inflation and blow-up of the JPY carry trade in 2003-2008 showed us. 

Not sure where this will take us in the near term- but this is more than just about "JPY weakness" as it is also behaviour of massive capital flows that are linked to that development that matter. 

Stay careful out there.