The Japanese Yen has historically been considered a safe haven currency during times of financial crisis, thanks to Japan’s large current account and net foreign asset position. In times of economic uncertainty, investors often turn to the Yen as a safe haven, causing it to outperform other currencies.
This trend has continued in recent months, as the global economy has struggled with the COVID-19 pandemic and ongoing economic uncertainty. As a result, the Yen has returned as the clear outperformer, with many analysts predicting that it will continue to strengthen in the coming months.
ING Predicts Dip Below 130 for USD/JPY
Economists at ING are among those predicting that the Yen will continue to strengthen, causing the USD/JPY pair to dip below 130. The Yen’s strength is expected to come from the macro side, as investors continue to seek safe haven assets in the face of ongoing economic uncertainty.
The USD/JPY pair has already experienced significant losses in recent months, with the Yen outperforming the US dollar by a wide margin. The pair has fallen from a high of around 110 in March to around 107 in May, and many analysts expect that it will continue to decline in the coming months.
Factors Contributing to the Yen’s Strength
There are several factors contributing to the Yen’s strength, including Japan’s large current account surplus and net foreign asset position. Additionally, the country has a reputation as a safe haven in times of economic uncertainty, thanks to its stable political and economic climate.
Another factor contributing to the Yen’s strength is the ongoing economic uncertainty caused by the COVID-19 pandemic. With many investors uncertain about the future of the global economy, they are turning to safe haven assets like the Yen to protect their investments.
Finally, the Yen’s strength is also being driven by monetary policy. The Bank of Japan has kept interest rates near zero for many years, making the Yen an attractive currency for carry trades. As a result, investors have been borrowing Yen to invest in higher-yielding currencies, which has put upward pressure on the Yen’s value.
Near-Term Outlook for the USD/JPY Pair
While the Yen’s strength is expected to continue in the near term, there are some factors that could cause the USD/JPY pair to recover. For example, if the global economy begins to recover from the effects of the COVID-19 pandemic, investors may become more willing to take on riskier assets, which could put downward pressure on the Yen.
Additionally, the Bank of Japan may take steps to weaken the Yen in order to support the country’s exporters. This could include lowering interest rates or implementing other monetary policy measures.
Conclusion
The Japanese Yen has returned as the clear outperformer during times of economic uncertainty, thanks to the country’s large current account surplus and net foreign asset position. Analysts at ING are predicting that the USD/JPY pair will dip below 130 in the coming months, as the Yen’s strength continues to be driven by economic uncertainty and monetary policy. Traders should monitor key economic indicators and news events for signs of a potential reversal in the pair’s fortunes.
