Yen Up On Global Economic Volatility & Uncertainty

Yen Up On Global Economic Volatility & Uncertainty
August 13, 2019


The yen recorded its 1-1/2 year high against the greenback as investors increased bets that the Japanese currency could strengthen further in case of an extended trade war between the US and China. The currency markets also recorded low trading volume due to holidays in Singapore and Japan. From a high of 105.58, the USD/JPY pair declined to a low of 105.05 in the past 24 hours.

On Friday, President Donald Trump stated that he was not in a position to enter into an agreement with China and even questioned the next round of talks to be held in September. The comments have created a perception that the US dollar will continue to remain weak due to the ongoing trade war. Obviously, the yen, perceived as a safe-haven currency, started gaining on concerns over a global economic slowdown.

Commenting on the yen’s strength, John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness, said “Ongoing strength in the yen is yet another signal of the shift in sentiment towards a US dollar that could start to weaken soon, especially if fears of ‘intervention’ become more justified.”

In the meanwhile, Goldman Sachs downwardly revised the US GDP growth forecast, while warning about negligible chances of an amicable trade agreement between the US and China before the 2020 presidential election. The investment banking behemoth also stated that risks of a recession were increasing.

Goldman Sachs said, “Overall, we have increased our estimate of the growth impact of the trade war.”

Beijing last week allowed its currency, yuan, to weaken against the greenback, a measure taken to offset an increase in import duty on its goods reaching the US shores. Yuan’s weakness has put the Asian currencies under pressure while boosting the yen. Investors continue to show greater appetite for Japanese government bonds after China allowed the yuan to weaken below 7 per dollar.

Analysts, speculators, and investors are afraid that the US officials might try to weaken the dollar in response to China’s tactics to negate the impact of import duty hike by the US. China’s central bank, People’s Bank of China (PBOC), also justified its stance by saying that the yuan has strengthened by nearly 20% over the past two decades. The Chinese central bank’s position has further escalated tensions between the US and China.

Highlighting an increase in volatility in global financial markets, Esther Reichelt, Commerzbank currency strategist explained the reason for the strengthening of the yen. “Risk indicators and global markets have become more shaky and the yen is reflecting those concerns, and safe-haven shelters like the yen and the Swiss franc should continue to benefit.”

Usually, hedge funds borrow the yen and use it to fund leveraged bets in other kinds of assets. The current situation has made them unwind short positions on the yen, pushing the Japanese currency into an upward trajectory.

In the coming days, the market will closely track the US Federal Reserve annual symposium at Jackson Hole, scheduled later this week, for signals on the future trend of benchmark interest rates. As of now, currency markets are anticipating 60 basis points rate cuts from the Fed by the end of 2019.

Therefore, we can expect the yen to remain bullish against the greenback in the near-term.

Technically, the USD/JPY pair has failed to stay above the resistance level of 108.60. The next major support is expected only at 101.75 levels. The RSI indicator is also moving below the reading of 50. As a result, we can expect the currency pair to move down in the short-term.

JPY - technical analysis - 13th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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