The main feature in the foreign exchange market continues to be the surge of the Japanese yen. A convincing explanation of the yen's strength seems elusive. Until last week, which means through the fiscal year-end last month, Japanese fund managers have been buying foreign bonds at a near-record pace. Foreign investors, for their part, have been dumping Japanese shares. The main buyers of the yen appeared to be speculators, wherein the futures markets, they have amassed a near-record net and gross long yen position.    

Our Tokyo contacts point to an another source of flows that have been yen positive, however, concrete figures are not yet to be found. Japanese exporter is suspected repatriating overseas earnings at the start of the new fiscal year. The yen has strengthened against the dollar four of the five past Aprils. Month-to-date, the yen has soared nearly 4%. Its closest rival is the Swiss franc, which has gained about 0.6% against the greenback. 

Japanese officials have stepped up their verbal warnings to the market but with little effect as it is widely understood that officials have limited room to maneuver.  The bar to intervention is high.The G7 and G20 recently have reiterated their pledge (what we have cast as a type of arms control agreement) not to seek competitive advantage from the currency market.Prime Minister Abe himself reiterated this in an interview with Dow Jones this week.  

It has been five years since there was intervention on dollar-yen, and that was in coordinated action following the tsunami and earthquake in Japan. Although the pace of the move is strong, and the move has been one-way, the market is not disorderly.We note that the current five days advancing streak of the yen follows a seven-session run to the downside between March 17 and March 28. 

The yen's rise has coincided with a sharp fall in the US 10-year premium over Japan. The premium peaked on March 22 near 204 bp. Today, it is below 180 bp. We have suggested a technical objective for the dollar in the JPY106.80-JPY107.00 area.Despite the talk of a secret agreement struck in Shanghai to weaken the dollar, Japanese and American officials are likely as surprised by the yen's strength as are a market participant.This is most likely not an engineered move.