Is not the JPY a safe-haven anymore?

The situation in the economic world is unstable, however, the Japanese yen does not rise. There has been constant JPY selling against other currencies since the end of June. What is happening to the safe-haven currency? Maybe the JPY is not the refuge currency anymore? Let’s figure it out.

The Japanese yen is used to be the safe-haven currency, the currency that rises in times of uncertainties. Last week the US President announced new tariffs on China. Mr. Trump doesn’t stop twitting negative comments on the EU trade, the Chinese economic growth slows down threatening the global growth. Despite all these facts, the Japanese currency is low. On July 17, USD/JPY pair reached the highest level since the beginning of January 2018.

Why is it happening to the JPY?

The main reason of the JPY depreciation against the USD is the US economy. Strong US economic data raise the appetite for the USD.

Another important reason is the hawkish Federal Reserve and the dovish Bank of Japan. Investors put money in currencies with higher interest rates. It’s not a secret that the Fed has already raised the interest rate twice and is anticipated to raise it two additional times this year. At the same time, the Bank of Japan keeps insisting on the quantitative easing policy.

As a result, the US dollar is certainly stronger than the Japanese yen. Moreover, you should remember that the USD is considered as a safe-haven currency as well. As the USD and the JPY are both safe-haven currencies, but the USD is evaluated as the more safe currency because of the Fed’s monetary policy, the USD wins this battle.

Let’s have a look at the technical side.

Up to now, the pair has been testing the highest level since the beginning of January at 113. If the USD manages to keep rising, the pair will have chances to break above 113. The further resistances lie at 113.40 and 113.75. In case of the fall, the support lies at 111.40.

MUFG Research anticipates a test of the level at 113 in the near-term. Although an improvement in the US-China trade relationship may happen, it won’t affect the pair a lot. Japanese outward investment flows are anticipated to pull USD/JPY further up.

Thomson Reuters IFR Markets sets higher targets for the USD/JPY pair: 113.40 and 113.75.

No chances for the JPY?

Let’s not be pessimistic. Although the USD is strong, the authoritative institutions such as Morgan Stanley and Lloyds forecast a weakness of the US currency in the near future. Morgan Stanley predicts that the reversal moment for the USD will happen in August this year and will lead to a strong depreciation of the USD in late 2019. The Bank forecasts USD/JPY at 88.00 - 101.00 within 12 months. Reasons of the pair’s fall are a flatter US yield curve and higher asset volatility in the second half of 2018. They will make Japanese investors reduce investment abroad. Investors will replace their funds into assets held in the JPY that will support the JPY rate.  

Lloyds is optimistic on the JPY as well. Although the market anticipates the Fed to raise the interest rate this year, the Central Bank will try to keep the rate at the neutral stance, so it will create limits for the further rise of the USD. As a result, the JPY will get chances to recover. The Bank forecasts USD/JPY at 108 at the end of 2018 and at 103 at the end of 2019.

Making a conclusion, we can say that the Japanese yen hasn’t stopped being the safe-haven currency. The reason of its fall is the easing monetary policy of the Bank of Japan and the strong USD which investors prefer the most now. However, the perspectives for the Japanese currency are optimistic. The weakness of the USD will pull the JPY up.