Why Japan Was On Fire

This chart just came across my desk. From the Tokyo Commodity Exchange.

Seems foreign trading on TOCOM has been booming of late. Since the last quarter of 2012, monthly trade volumes by foreigners have jumped from close to 1.2 million contracts to around 2.3 million contracts.

Screen Shot 2013-06-06 at 10.22.29 AM

It’s interesting that this spike in volume corresponds almost exactly with the big run we’ve seen in Japanese stocks. Between November 2012 and May 2013, the Nikkei index jumped over 80%.

Were commodities investors chasing the run-up in the stock market? Thinking that a robust Japanese economy would drive metals and energy demand higher?

Or perhaps this is a symptom of something larger. Perhaps investors “put on” the Japan trade last fall (possibly following Japanese government announcements that it would step into buying stocks, bonds and other investments).¬†Huge amounts of capital flowed to Japanese investments. Possibly causing the run-up in these markets, with relatively little connection to any fundamentals.

The Nikkei finally topped out late in May. The index is down over 16% during the last two weeks.

It will be interesting to see this chart for the month of May. And find out if the big dive corresponded with a drying-up of foreign capital inflows.

Here’s to knowing where the money’s going,

Dave Forest


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