The yen is usually the go-to currency when crisis strikes – standing rock solid. But recent activities might point to signs of a possible shift…
Although Japan may stand 8,000 kilometers from Ukraine, so far the pressure in Eastern Europe proves that investors are holding onto their faith in the yen.
When Russia seized control of Crimea, the yen hit a one-month high against the dollar. It’s a consistent pattern. When investors make a mad dash from risk to seek safety, the yen (along with the Swiss franc) are the only two currencies that steadily increase against the dollar, according to economists. The September 11 attacks and the Greece debt crisis are proof.
Japan’s got it all when it comes to safe-haven currencies: low interest rates, deep and liquid financial markets, a strong net foreign asset position… all of the necessaries covered.
Yonggi Kang, Reuters Reporter, says, “The fairly short-lived spike in the yen this time around indicates perceptions may be changing. While Japan’s still one of the world’s biggest net creditors, its current account surplus is shrinking.”
Japan’s government has indeed used the yen weakness as a backbone for economic policy. What’s more, adding to yen downside risks, the Bank of Japan is dead set on unleashing more stimulus. However, currency watchers argue that the overall picture hasn’t changed. Barclays‘ Assistant VP over FX Research, Shinichiro Kadota, shares a few words:
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“Japan has a wealth of external assets it has amassed through many years, and just because we’re seeing some red numbers, that doesn’t mean Japan is going to be a net debtor nation immediately… Especially if you look over the past year, the yen has weakened a considerable amount.
“But we don’t think that this weakening pace is going to continue. Barclays forecasts the yen to hit 107 to the dollar in the next six months. After that, it will return to fair value levels, and work its way back to 100. Just because the yen has weakened recently, that doesn’t mean it will lose its ‘safe-haven’ status.”
Most analysts forecast a softer yen in the next six months, but some believe it could hit the 100-per-dollar level, according to a Reuters poll. In spite of weakening factors… the yen still looks like a safe bet in a world with endless emerging market risks.