Originally posted at forexfactory on August 27, 2010
Ive read a few times that Japanese exporters are selling the dollar. Why would they do this, doesnt it just make they exports more expensive? Or is it a purely speculative move?
They need to repatriate profits(which are in USD) and convert them to JPY. Many of them assumed a USD/JPY exchange rate of 90-95. Once USD/JPY started cracking 90 many exporters started getting jittery because they generally don’t want to repatriate profits at such a low level. The more USD/JPY slides the more their profits denominated in USD erode in value. So therefore some of them take the position of saying I will sell USD/JPY on any rally mentality. So every time USD/JPY cracks a key level to the downside its decision time for the exporters about whether to bite the bullet and repatriate or wait for a 50 pip bounce, 100 pip bounce etc. So any short covering that occurs, generally runs headwind into some exporter selling.
It has been one of the many key reasons why the bounces in USD/JPY have been relatively small.