Yen Bucked Dollar Strength, Retaining Haven Status in Market Turmoil
Amidst the recent tariff surge, the Japanese yen demonstrated resilience, suggesting its continued appeal as a safe haven currency during times of market volatility.
Despite the dollar's aggressive gains, the yen initially appreciated by 0.3% against the greenback. However, it subsequently traded 0.3% lower at 155.61 per dollar at 12:15 p.m. in Tokyo. Conversely, the euro, Canadian dollar, Australian dollar, and New Zealand dollar all declined against the US currency.
Japanese government bonds also witnessed buying interest as domestic equity markets retreated. The yen's relative strength this week is not an isolated occurrence; it is the only Group-of-10 currency that has maintained its value against the dollar in 2025.
Equity markets across Asia experienced declines following President Trump's imposition of tariffs on Canada, Mexico, and China. However, the yen's resilience amidst these risk-averse market conditions is attributed to its safe-haven status.
"The yen is rediscovering its safe haven credentials," remarked Gareth Berry, a Macquarie Bank Ltd. strategist. "This is largely due to the Bank of Japan's hiking path and elevated US Treasury yields, which have dipped in response to risk aversion and consequently lowered dollar-yen rates."
The yen's performance in 2025 contrasts with its depreciation over the past four years, when the substantial interest rate differential between Japan and the US exerted relentless pressure on the yen.
The stronger yen may provide the Bank of Japan with more flexibility in determining its interest rate hike strategy, potentially narrowing the rate gap with the US. Economists anticipate the central bank's next move between July and September, following its rate increase last month.
Nonetheless, some strategists question the sustainability of the yen's haven appeal, given the potential for tariffs to be imposed on Japan. Prime Minister Shigeru Ishiba's forthcoming meeting with President Trump may shed further light on the risks to the yen and the possibility of tariffs.
Finance Minister Katsunobu Kato has indicated that Japan is closely monitoring the impact of the tariffs on its currency. While the dollar maintains its yield advantage over the yen, the Japanese currency is gaining ground against other haven currencies, such as the Swiss franc.
The yen's implied carry, measured by three-month forward-implied yields, has exceeded zero since late December and has recently reached parity with the franc for the first time in over two years. "The yen is now relatively inexpensive compared to the strong franc," noted Berry. "The BOJ's ongoing tightening stance further supports the yen's case, while the Swiss central bank is easing."