The past two weeks has seen the yen become the strongest currency among the majors
with dollar in second place, though with a large margin in between, notes Tohru Sasaki, JPMorgan’s Tokyo-based currency strategist.
For once, there was no particular event or economic figures that triggered this trend, although the FT’s currency correspondent Peter Garnham says that falling US equities have increased the “safe-haven appeal” of the low-yielding Japanese currency.
Interestingly, notes Sasaki, the yen “seems to gain support when emerging markets are in trouble”.
As the FT noted in a separate analysis, commodity currencies are being hit by growing concerns over a slowdown in the resource-hungry Asian economies. This has seen emerging-market Asian currencies fall sharply in recent weeks and prompted action by various central banks in the region to prop up their currencies.
As the first two charts below indicate, although the yen has not had a strong correlation with emerging markets in the past few months, this has reversed back to form in the past couple of weeks.
In Sasaki’s view, this may be caused by off-shore investors who had financed their emerging
market investment in yen and are now being forced to unwind their investment and thus, buy back yen. Therefore, if emerging markets continue to decline, JPY is likely to continue to outperform, he concludes. Among emerging market currencies, meanwhile, emerging European currencies are showing a similar trend with the yen (Chart 3) compared to Asian or Latin American currencies.
