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Despite the prevalent fears over coronavirus, on a 5-day view the JPY is the worst performing G10 currency. This is a remarkable turnaround for a currency that until a few days ago was widely viewed as both a favoured and a tried and tested safe haven. Economists at Rabobank review the Japanese yen outlook. 

Key quotes

“We would link the turnaround in the behaviour of the yen with three overlapping factors. The first is that the impact of the coronavirus is very close to home, the second is the step-up in fears that Japan could fall into recession in the current quarter and the third is that the USD can offer both liquidity and yield. For these reasons the USD can offer many investors a more practical safe haven.”

“Speculation that PM Abe may have to consider another round of spending, just two months or so after the last round of stimulus, have inevitably grown and speculation is also rising that the BoJ may have to announce further stimulus. More BoJ stimulus inevitably has negative implications for the JPY and highlights the attraction of the positive yielding USD.”

“While Japan’s healthy current account surplus suggests that it is likely to re-claim its safe haven behaviours once the coronavirus crisis has ebbed, the USD could increasingly become the favoured store of value for many investors. We retain our view the USD will again be far stronger than the consensus expectation this year.”