JPY: The last resort? - Rabobank
|According to Jane Foley, Senior FX Strategist at Rabobank, the performance of the USD during the summer opened a debate as to whether the greenback has taken the place of the JPY and the CHF as the most favoured safe haven currency.
Key Quotes
“We have maintained that when sentiment really turns nasty that the JPY will remain the market’s safe haven of choice. This arguments has been given credence by today’s strong performance of the JPY.”
“On a one day view the JPY is the best performing G10 currency. The solid performance of the yen follows the heavy pressure exerted on stock markets indices over the last 24 hours or so. The US may be one of the few major economies to be able to boast positive year to date gains in its main equities bourses, but yesterday a combination of concerns over global growth, USD strength, trade wars and the Saudi diplomatic issue created a strong drag on sentiment, pushing USD/JPY lower. It can be assumed that if US stocks bounce higher USD/JPY will follow. However, if ‘risk-off’ sentiment continues to undermine US stocks, the JPY will likely be better supported.”
“Aside from the levels of risk appetite in global markets, the outlook for the JPY may be impacted by the forthcoming BoJ policy meeting scheduled for October 31. Speculation has been building as to whether the BoJ may offer a policy tweak in order to support the financial sector. This could take the form of potentially allowing yields in very long dated JGBs to rise a little further. That said, it its semi-annual financial system report released this week, the BoJ appears to have signalled that it is comfortable with the lending behaviour of the sector even though many continue to lose money on loans.”
“In July, the BoJ allowed a wider range of movement in yields though it adhered to its huge QQE programme. Any further tweaks could influence the outlook for the JPY, though we expect that in the coming weeks the overall tone of risk appetite in US equities is likely to have a greater influence on USD/JPY. We expect the currency pair to end the year close to the USD/JPY 113 level based on our assumption of broad based strength has further to run.”
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