Something to digest (not necessarily to act on!) as reported by the Dow Jones News.

Overseas pension funds and other institutional investors are now snapping up the Japanese currency in a reversal from past practice, the Nikkei reported in its Thursday morning edition.
“After the bon holiday period in mid-August, (foreign) institutional investors finally began yen-buying,” says Kimihiko Tomita at State Street Bank and Trust Co.
These institutional investors had previously mostly sold the yen, even as the currency soared, according to an analysis by State Street. They were pessimistic about the economic outlook for Japan, which has been mired in deflation.
But now that the U.S. economy is slowing down, they apparently figured that the yen is a better bet than the dollar.
Professional investors are even credited with spoiling the Bank of Japan’s effort to curb the yen’s surge through additional monetary easing, according to Toru Sasaki of JPMorgan Chase Bank.
Until now, speculative investors were the main yen buyers.
In currency futures trading on the Chicago Mercantile Exchange, the noncommercial category, which includes transactions by speculative investors, is recording over 50,000 contracts of net yen purchases, roughly on a par with levels seen during last year’s Dubai debt crisis.
But because of such high buying levels, it was thought that speculative investors could no longer afford to continue buying, making it unlikely that the yen would climb further, says an official at a domestic bank.
Now, the yen’s advance may go on if institutional investors indeed replace speculative investors as the biggest buyers of the currency.

Some of the trades, or rather possible trades,discussed on Sunday did not get updated in the last post. The new CFTC rules governing Forex trading in USA were published, so I decided to devote a post to that. In a nutshell, starting October 18, maximum leverage on the major Dollar pairs will be 50:1 and on other crosses 20:1. Nothing truly damaging and quite achange from the proposed 10:1. Personally, I do not care, because my own trading does not include that high leverage. But the elimination of options available to traders is disturbing. Once again, it is the government “protecting” people from themselves. Who cares? If people want to blow accounts by trading at 100:1 or higher, let them. Well, it seems to be a done deal, unless, of course, some new provisions are added between now and the starting day.

Early week has been interesting, indeed. The emergency BoJ meeting took center stage and set the tone for currencies. The Bank of Japan expanded its loan program, a QE measure. As I wrote in Will BoJ ease policypost  ”That will be reflected in Yen and its crosses, but predicting how the JPY will respond to an event which might or might not happen is, at best, too complicated to be seriously entertained.” The Yen strengthened  on the announcement, not what most people expected, pushing all the crosses down in by a significant margin. These moves lasted through Tuesday, although seem to running out of steam about now.

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Federal futures regulators finalized new rules for the retail foreign exchange market late Monday, but they backed away from their original proposal to place strict limits on the amount of borrowed funds retail foreign exchange investors can use.

The rules, posted after business hours on the Commodity Futures Trading Commission’s website, create a new regulatory regime for firms that deal in retail foreign exchange products by requiring them to register with regulators and abide by minimum net capital standards.

The original proposal had called for capping leverage at a strict 10-to-1 ratio, instead of the existing 100-to-1 for major currencies. That portion of the proposal drew a record number of comments as dealers, investors, and lawmakers all raised opposition amid fears it could kill the industry in the U.S.

As such, the CFTC said late Monday it had scrapped that part of the plan. Instead, the agency said it will allow the National Futures Association to impose its own leverage rules as long as they require investors to place a minimum security deposit of 2% on trades involving major currencies and 5% on the notional value of the trade for all other currencies. The National Futures Association is the self-regulatory organization for the industry. The CFTC said it will review the leverage requirements periodically to ensure they don’t need to be adjusted.

The retail foreign exchange market is a niche market that allows mom and pop investors to bet on price movements in foreign currencies by purchasing off-exchange contracts through a brokerage firm. The use of leverage allows them to greatly increase profits, but volatility in prices can also result in magnified losses.

The CFTC has sought to impose greater regulations on the industry amid concern about a growing number of fraud cases. Congress gave the agency expanded authority in 2008 to impose the rules that were announced Monday. Those include imposing a $20 million minimum net capital standard on foreign exchange dealers and greater disclosure rules to help benefit customers.

“The CFTC has worked to craft rules that will protect American investors, and at the same time provide for the operation of legitimate business activity,” CFTC Commissioner Bart Chilton said in a statement late Monday. “With these new rules, the agency is ensuring that people investing in forex are protected from fraud and abuse.”

The CFTC’s new rules haven’t yet been published in the Federal Register. They will take effect Oct. 18.