Nomura: Japan Retail 'Love Affair' With Brazil Real Continues

First Published Monday, 27 June 2011 04:18 pm - © 2011 Dow Jones

SAO PAULO -(Dow Jones)- Japanese retail investors continue their "love affair" with the Brazilian real, which adds pressure on the Latin American currency to continue appreciating, according to Japanese investment bank Nomura.

Japanese investors are putting more money into mutual funds than prior to the earthquake on March 11, and at the current pace, they may put some $45 billion into the Brazilian real over the next 12 months, up from around $30 billion over the last 12 months, according to Jens Nordvig, a managing director at Nomura Securities.

Much of that money will, through a circuitous route, end up on the books of the Brazilian central bank, which has been buying up dollars to try to stem the Brazilian real's strong gains versus the dollar, according to Nomura.

In Japan, when investors put their money into any mutual fund that invests in stocks, bonds or other assets, they can also select to make that investment through a specific currency, to increase their returns. Since 2009, the Brazilian real has been by far the most favored currency for these mutual fund investments, Nordvig told reporters on Monday.

Nomura is holding a conference in Brazil's business capital on Tuesday to discuss the implication of those flows for the Brazilian economy.

After 18 years of an economy in the doldrums, Japanese retail investors have long favored overseas investments to deposit their hefty savings.

While there was a very brief reversal in the wake of the devastating earthquake, as investors brought some money back into Japan, flows stabilized in April and increased in May, Nordvig said. May was "much stronger" than the flows in January and February, he said.

Even some Japanese companies appear to be focusing overseas, as the doubts about the future for the Japanese economy has become more unclear since the quake, Nordvig said. The spate of large international acquisitions suggests that companies are keener to diversify overseas, he said.

-By Matthew Cowley, Dow Jones Newswires; +55 11 3544 7082;

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