Analysts at Rabobank consider the risk of a sharp break out in the USD/JPY pair is less significant than it may have been in other crisis. Still, they see that a move towards 105 is possible in the months ahead.
Key Quotes:
“The current lack of volatility in USD/JPY can mostly be explained by the fact that the USD has taken on a greater safe haven role in this crisis which has reduced the scope for JPY outperformance.”
“The FX flow in the current crisis has been between EM and G10, with the richest economies seen to be better positioned to field the costs associated with the economic lockdowns. According to the Institute of International Finance, foreign investors withdrew USD95 bln from emerging market stocks in the month and a half starting late February. This is roughly four times the outflow that was registered after the start of the 2008 global financial crisis.”
“We do see scope for a potential dip towards JPY/USD 105 on a 3 month view. This assumes a worsening in US/China tensions in the run up to the US November presidential election. We have frequently argued that one of the biggest shifts in the foreign exchange market over the past ten years has been the developing role of the USD. The USD is the only dominant currency in the global payments system.”
“The USD is a practical safe haven for many kinds of investors and business owners. While the USD may have stolen some of the JPY’s safe haven spotlight, the latter still has its specific sensitivities. News headlines that spell alarm in connection with N. Korea still have a tendency to support the JPY vs the USD.”
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