USD/JPY Fundamental Daily Forecast – Yen May Be Decoupling from Other Safe-Haven Assets

The Dollar/Yen is trading lower on Monday as some investors are apparently moving back into the Japanese Yen due to its safe-haven qualities. Last week, the Japanese Yen plunged nearly 2% against the U.S. Dollar, even while traditional safe-haven assets – gold and Treasurys – climbed. The unexpected move prompted investors to suspect a big shift in Japanese asset allocation as well as to ponder the Yen’s role in global finance. Basically, is it a safe-haven asset or not?

At 08:42 GMT, the USD/JPY is trading 111.424, down 0.151 or -0.14%.

Last week’s huge rally in the Dollar/Yen points to a big flow of cash out of Japan.

Analysts who remember a similar sell down in 2014 reckon it was probably from the juggernaut Japanese Government Pension Investment Fund and that it was probably buying foreign bonds ahead of the end of the Japanese financial year in March.

Other analysts are saying the move was fueled by uneasiness because of weakness in Japan’s economy and signs for month that the Yen is decoupling from other safe-haven assets such as gold or bonds.

They say the rationale behind the selling of the Japanese Yen was protection against Japan’s fragile economy and the creeping spread of the coronavirus. Additionally, some market participants are questioning the rationale for its safety status.

Bank of Japan’s Kuroda Blames Yen’s Fall on Strong Dollar, Upbeat on Economy

Bank of Japan Governor Haruhiko Kuroda said on Saturday the Yen’s recent declines were largely driven by a strong dollar, shrugging off some market views that the widening coronavirus epidemic is triggering an outflow of funds from Asia, Reuters reported.

Kuroda also said he had not changed his view that Japan’s economy would continue to recover moderately, suggesting that he saw no immediate need for the BOJ to expand stimulus.

Kuroda also dismissed views held by some market players that the Yen could be losing its status as a safe-haven currency.

“When you look at recent developments, the dollar is strengthening against the Yen, the Euro and various currencies including those in Asia,” Kuroda said.

Daily Forecast

The direction of the USD/JPY on Monday and over the near-term will be determined by whether investors consider the Japanese Yen a safe-haven investment or just a weak currency.

If traders think the Yen is still a safe-haven asset then the currency could rise sharply if U.S. interest rates and the stock market continue to plunge in reaction to fears the coronavirus outbreak will inflict further damage on the global economy.

Look for the USD/JPY to continue to rise if traders look at the Yen as a weak currency due to expectations of a recession in Japan this quarter.