Currencies: Fund Flows out of Euro and Into Yen Benefit Dollar

In another quiet market, the dollar is making gains against the euro and several other major currencies as a result of stronger demand for yen today.

A seemingly strange bit of cause and effect, yes, but the logic works. The end of the Japanese fiscal year is fast approaching, and in preparation, Japanese corporations are repatriating funds, according to Reuters. Repatriation entails converting overseas investments back into yen for year-end accounting purposes. This causes a large demand for yen.

This increased yen demand is reflected primarily in euro/yen trading, as in recent weeks the largest outflows of funds from Japan were into Europe, rather than into the U.S. So, when demand for yen grows, the funds come back out of Europe, causing the euro to lose value against the yen. This morning the euro is doing just that. It recently traded for 106.95 yen, down from yesterday's close of 107.66. ...