Halister News

(Bloomberg) -- Contrary to popular belief, Japanese investors’ demand for dollar funds falls rather than rises in December as they front-load borrowings before the markets thin out for year-end holidays, a seasonality chart suggests.

• USD/JPY 3-mo. basis swaps rose each December since 2012, according to Bloomberg data, indicating a cheaper cost of dollar funding for Japanese investors
  • Swaps fell in June and September every year during this period
• Click here for seasonality chart and here for historical chart
• The contracts currently trade at -75.5bps, up from a record low of -94bps on Nov. 29
• Japanese investors demand for dollar funding typically increases at the end of every quarter, owing to factors such as payments, investments in foreign assets or rollover of currency hedges, says Shuichi Ohsaki, chief rates strategist in Tokyo at Bank of America Merrill Lynch
  • Japanese investors appear to be circumventing the thin year-end holiday period by obtaining dollar funding before foreign banks wind down for the December holidays
  • This will drive down USD/JPY 3-mo. basis swaps, leading to a subsequent rebound in December when investors’ demand eases