One of the knock-on catalysts for yen weakness is the flow of capital out of yen-denominated money market funds. International investors have been in the habit of investing money into yen-denominated money market funds, hoping that the appreciating currency would “pay the dividend” in lieu of meaningful yields. For context, here is the cumulative flow into yen-denominated money market instruments since 2005:
Fig. 1. Cumulative sum of net purchases of yen money market instruments by non-residents, 2005-2013. Source: Japan Ministry of Finance
A weakening ￥ feeds on itself, the theory goes, because money market investors have less incentive to add more funds or keep their capital in yen accounts. The flow of investors selling their USD (or etc.) to buy JPY reverses course, which only adds to the new prevailing trend.
Fig. 2. Net purchases of money market instruments by non-residents, 2012-2013. Source: Japan Ministry of Finance
In mid- and late December, it looked like this catalyst was not yet in play, as net purchases by foreigners reached some of the highest weekly levels in all of 2012. But the four weeks of data to January 13 show a much different result.
Fig. 3. Net purchases of domestic equities by non-residents, 2012-2013. Source: Japan Ministry of Finance
Look also at the flow of foreign money into Japanese equities. These are the highest levels since the spring of 2011.