DIVERSIFICATION: Is The Yen Something You Want To Own?
DIVERSIFICATION: Is The Yen Something You Want To Own?
A Quick Breakdown Of The JPY
The Japanese Yen (JPY) is one of the most interesting topics when it comes to macroeconomics at this given time.
While the United States Federal Reserve and the European Central Bank (ECB) are both hiking rates with the goal to get inflation under control, the Bank of Japan (BOJ) is doing the complete opposite.
With Asia seeing a larger impact on their economy due to Covid-19 restrictions, the BOJ is still supporting the economy and has maintained its dovish stance on their notes issued in July.
"...the Bank should support financing, mainly of firms, and maintain stability in financial markets, and should not hesitate to take additional easing measures if necessary. It is appropriate for the Bank to maintain the current forward guidance for the policy rates.." Source
Due to the strong dovish stance from the BOJ, the Yen has completely plummeted as it is down dramatically versus the US Dollar. People have sold their Yen and purchased the dollar.
Japanese Yen Is A Safe Haven
The Yen has always been known as a safe haven in currencies because of its ability to hold up well during a higher-risk environment such as an economic contraction globally.
The Yen is the third most traded currency behind the Dollar and Euro.
During the 2008 global financial crisis, the Yen Gained over 19% vs the USD.
Technically, the USDJPY is currently at a resistance level from 2001 and it has held as resistance for the past 3 months.
Things are getting interesting at this level because of the current global macro conditions we are seeing that may warrant strength into the Yen.
There is a serious risk of stagflation and a recession in the United States and this only strengthens a bullish thesis for the YEN further.
The Case For Strong Dollar
Money has been flowing into the US Dollar as a safe haven because the US economy has been strong compared to the economies of Europe and Japan but, the tone has shifted on the USD recently.
A technical momentum indicator, the MACD, is bearishly converging on the USD ($DXY). Although the dollar has yet to confirm weakness it is showing signs of a slow down in demand.
After a positive CPI and PPI data release, the US Markets can potentially expect a less hawkish federal reserve in the coming months.
The United States Dollar is also very strong due to the very hawkish Federal Reserve but, if the BOJ can change tone and be open to pivoting to somewhat of a hawkish stance to fight inflation then that could potentially bring confidence back into the Yen.
The Bottom Line
The bottom line is Japan is always known for lower interest rates as its goal is to spark growth in its economy. The BOJ has its policy meeting on September 21-22 and this could be a huge meeting as we have recently seen inflation numbers rise in Japan.
The Yen has crashed and even though it has bounced from the lows, it is still like catching a falling knife in my opinion.
We will be monitoring comments that come out of Japan in regard to monetary policy.
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