Greg Gibbs, Analyst at Amplifying Global FX Capital, explains that JPY has traditionally been considered as a safe-haven; rising when global asset prices are weakening and to some extent, this also comes through bond yields, since risk aversion generally results in lower global bond yields and a lower USD/JPY yield advantage.
“In fact, the relationship between JPY and global equities has been rather mixed in the post GFC era. The fact is that JPY is not as routinely used as a funding currency for ‘risk-on’ trades as it was before 2007.”
“The JPY was highly correlated with the bond spread throughout 2017, and it paid little attention to the consistent strength in global equities. In fact, up until January this year, broad USD weakness was associated with rising global equities, and the JPY participated in this move. As such, USD/JPY fell despite a ‘risk-on’ mood.”
“The USD/JPY made a low for the year in March, and this may have reflected broad market equity upheaval.”
“In recent months, the JPY has tended to ignore further upheaval in EM equities. On the other hand, US equities have been generally recovering. As such, there has not been widespread risk aversion. The environment has been more mixed.”
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