Synopsis:

Goldman Sachs analyzes the impact of anticipated Japanese repatriation flows, particularly from major institutions like GPIF and financial firms shifting allocations away from foreign bonds. While expectations lean toward a domestic stock and bond reallocation, there is little evidence yet of substantial foreign bond repatriation, making JPY strength potentially premature.

Key Insights:

1️⃣ Major Institutional Shifts 📊

• A large Japanese financial institution plans to reduce exposure to foreign bonds after consecutive losses.
• GPIF’s five-year portfolio review (expected by March-end) could reverse previous shifts into foreign bonds, favoring domestic stocks and possibly JGBs.

2️⃣ Market Expectations vs. Reality ⚖️

• Markets expect repatriation flows into domestic assets, strengthening JPY.
• However, weekly data show no clear evidence of significant foreign bond selling yet.

3️⃣ Trading Implications 💡

• If repatriation flows materialize, JPY strength could be more persistent.
• If flows fail to emerge, Goldman sees an opportunity to position for a tactical reversal, meaning JPY could weaken again.

Conclusion:

Goldman acknowledges the case for JPY strength from anticipated repatriation flows but sees no concrete signs yet. If flows do not accelerate, the bank prefers positioning for a tactical JPY reversal rather than chasing further upside.