Is the Yen finished as a safe haven currency?
Published on 16.07.2018 06:30

Along with the Swiss Franc, the Japanese Yen has historically been the other currency that the market has deemed a safe haven in times of financial instability but there may be a new currency on the block which investors feel more safe with.

Ever since the trade wars between the US and China came to the forefront, the Yen has been declining against its US counterpart and even the uncertainties surrounding Brexit, and the damage it could do.

The reasons behind traders shunning the Yen could be many but one of the reasons may be the lack of yield that the currency offers as interest rates in Japan currently sit in negative territory at -0.1 percent where they have been since 2016.

In fact, the Japanese currency has not provided investors with any yields for more than 25 years.

So, which currency is benefiting at the expense of the Yen? Of course, it’s the US dollar.

Although the Greenback has also been traditionally noted as a stable currency, it wasn’t in the same league as the Yen when it came to safe havens.

But now it seems the tide is changing and investors are no longer just happy to park their money and ride out the storm in times of trouble and now they are looking for a mix of safety and growth which the US dollar seems to be offering at the moment.

Of all the major economies, the US currently has the highest interest rates which means bigger returns and with rates set to push higher as the year unfolds the situation is bound to get better.

“Investors have been piling in on the dollar because of higher interest rates in the US and expectations that monetary conditions will tighten further in the coming months,” said Fawad Razaqzada from Forex.com.

“With U.S. employment already near its potential, unemployment low and wages on the rise, inflation could accelerate in the coming months due to the increase in the price of goods and services as a result of the import tariffs. This may further boost expectations over rising price levels and in turn tightening of monetary policy from the Fed, which already looks set to hike interest rates two more times in 2018,” he added.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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