There is a big relationship between the USA dollar and the Japanese yen in many aspects and this is well illustrated and before the yen started to emerge as a safe haven, for instance, the Japanese yen and the Fed had the same policies to support the dollar especially at a time when it was losing its value in the market but at the moment many financial analysts insist that the yen is strengthening itself for its own reason especially in the deleveraging for the trade it has created in the market for over the ten years.
But things are not going very well for the yen since recently the USA dollar gained much in the market and this has been brought about by the fact that most of the risk-takers have started investing and buying the dollar in preference with the low yielding yen. Moreso there is an increased fear by almost all the investors about the general intervention of the central bank of Japan on the concerned issue of its increased strength compared to other currencies.
The major issues
The Japanese yen remains in its recent ranges this morning as its appeal as a safe investment diminishes as global stocks rebounded. The yen is not that stable and its increase in strength has made the government panic and make a commitment to intervening in the situation.
The dollar weakening below market rate has been an issue, thus alerting the international market, bringing in huge losses in many international companies. The general weakening of the dollar has been brought about by the USA fiscal deficits which are dropping each day. It is not only the USA government that got issues of the dollar weakening but with a closer look, it is actually all the nations.
Another reason for the yen to be a safe haven at the moment is because of the credit crunch, this is a very difficult time for both the dollar and the Euro because the economic conditions for this nations are in a soft recession or they are heading in that direction. In addition to this the yen has benefited from the sharp contrast with the market equities, there has been a pessimistic relationship between the yen and the global market security shares. For instance, when the global shares went down, which was brought down by the collapse of Lehman, the strength of the yen was not affected at all.
When we look closely at the equity markets it seems that there remains a significant stress that can hamper the prospect for the Japanese yen to be a safe haven compared to the USA dollar. It is believed that such indication of the economic market strain will make it intricate for the main currencies to rally not in favor of the risk of the Japanese yen. The US Dollar and the Japanese Yen currency pair remains strongly in a relationship to the Dow Jones commercial Average.
Investing by the domestic traders has also boosted the yen. Japan has been a low interest rate country for a long time that domestic investors have sought higher earnings abroad. This makes their internal investors to look for market and other investments in the foreign markets and countries, as a result this brings about more revenue which is ploughed back to the country hence more opportunities to economic growth.
The basing pattern which took place in the USA dollar and the Japanese yen for weeks finally paid off recently when a surge in U.SA. equity markets called the importance for higher yielding assets. The more aggressive investors in the market have turned to the cheap yen to finance the opportunity for the better paying equities. But they have to watch the position and behavior of the yen against the dollar. Nonetheless, the situation has turned out to be between the USA dollar and the Japanese yen.
Any domestic impacts have got little impact on the Japanese yen through the international forex, and therefore we can still believe that there is no upcoming economic data that will force major moves in the Japanese yen. But the financial analysts will be watching keenly the broader international market volatility especially the price movements across the equity markets.
Garnham, & Whipp, L. Why the yen remains a haven. 2009.