Yen Weathers Dollar Onslaught, Remains Safe Haven as Trade War Looms
Amidst the dollar's aggressive surge, the Japanese yen has demonstrated resilience, highlighting its enduring appeal as a haven during market turmoil.
Yen's Relative Strength
Despite losses earlier in the day, the yen reversed course and gained 0.5% against the dollar, reaching 154.37 per dollar as of 7:33 a.m. EST. In contrast, the euro, Canadian, Australian, and New Zealand dollars all declined against the U.S. currency.
Japan's government bonds were also sought after as the nation's stock market experienced a sell-off.
Safe Haven Credentials
Gareth Berry, strategist at Macquarie Bank Ltd., attributed the yen's strength to its rediscovery of its safe haven status. This is due in part to the Bank of Japan's potential interest rate hikes, as well as elevated U.S. Treasury yields, which tend to decline during periods of risk aversion.
Contrast with Past Performance
The yen's resilience stands in stark contrast to its depreciation over the past four years, which was primarily driven by the wide interest rate gap between Japan and the U.S.
Potential Impact on BOJ
A stronger yen could provide the BOJ with more leeway in its interest rate hiking cycle, reducing the rate differential with the U.S.
Outlook for Yen
However, some analysts remain cautious about the yen's long-term haven status, as Japan could potentially become a target for tariffs from the U.S. in the ongoing trade war.
Finance Minister Katsunobu Kato indicated that Japan is closely monitoring the impact of tariffs on its currency.
Comparison with Swiss Franc
Despite the dollar's yield advantage, the yen is gaining against other safe haven currencies such as the Swiss franc. The yen's carry has risen above zero, reaching parity with the franc for the first time in over two years.