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According to Jane Foley, Senior FX Strategist at Rabobank, the relative weakness in the JPY recently has sparked a debate about whether it has lost its safe haven appeal.  

Key Quotes

“Although the softness of the JPY can be linked with the BoJ’s extremely accommodative policy stance, we would argue that the uptrend that has persisted in USD/JPY since March is more linked with a change in perception regarding the USD rather than the JPY.”

“Although it is very unlikely that the Japanese authorities would go against years of G7 communiques by intervening in the market, the extremely accommodative position of BoJ policy should be putting pressure on the value of the currency.”

“On the BoJ’s calculations, the effective exchange rate in 2015 was trading at its lowest levels since 1973 and is only moderately above those levels currently.”

“As long demand for EM assets is being undermined by fear of trade wars it is our view that broad based USD strength will persist. Insofar as CPI inflation in Japan remains well below target, there is no reason to expect the BoJ to change policy course particularly given the potential threat to Japan’s economy from trade wars.”

“Another argument supporting USD/JPY lies with the distinction between economic and geo-political stresses. While there is undeniably a lot of concern about trade wars currently, the tension between N. Korea and the US that last year saw a missile landing in the Sea of Japan has dissipated.   This is likely to have brought relief to Japanese domestic investors which could be boosting their interest in looking beyond JPY assets.”

“We were expecting USD/JPY to hold just below 112 on a 6-9 month.   On the back of the recent move in USD/JPY, we have pushed up our 6 mth forecast from 111 to 113.”