The latest bout of ‘risk-off has seen the yen rally as the safe haven currency of choice and the mood is likely to continue at least until the 2nd Greek election. Will the yen continue to prove to be the safest haven over this period?
While the lower current account surplus is being offset by M&A outflows, portfolio flows have turned more positive. This may reflect the Japanese equity market’s outperformance since Feb 14 as QE turned from a currency negative to a positive.
IMM data suggests scope for long yen positions to be rebuilt. However, the yen’s rise is already widespread, limiting the upside. Official tolerance of yen strength has been around 76 for USD-JPY and authorities will be concerned about the rise in the JPY against KRW and EUR.
The yen may be the only true safe haven currency. Japan has USD 3tr of net overseas assets and govt debt is almost entirely held domestically. For the yen to rise, Japanese investors need only decline to add to their overseas asset holdings.
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