The Japanese Yen: a Safe Haven Currency
There are currencies that are typically low-yielding and become stronger when there is an uncertainty or risk in the market, for example, the Global Financial Crisis or the COVID-19 pandemic. Such currencies are “a safe-haven currency.” The Japanese yen is—or used to be until the 2022 yen crash—one of the best safe haven currencies.
In recent decades, the Japanese yen prominently became stronger against the US dollar soon after the September 11 attacks in 2001. Following the notorious financial crisis of 2007 – 2008, the Japanese yen became sharply stronger against the US dollar. This trend continued until as late as 2011. The Japanese yen again advanced as the Brexit uncertainty hit the world in 2016. In 2020, the fear of the COVID-19 pandemic supported stronger Japanese Yen.
What Makes Yen Strong in Uncertainty?
The infographic summarizes why the Japanese yen becomes stronger in the time of uncertainty. It focuses on the following two points:
- Japan is the largest creditor in the world
- Japan has one of the lowest interest rates in the world for the past two decades.
2022 Yen Crash: Is JPY Still a Safe Haven Currency?
However, yen might have lost its long-established status. The Japanese yen in fact depreciated significantly at the end of March 2022, finally past 134 per US dollar in June 2022— a 20-year-low. Amid global uncertainty triggered by the Russian-Ukraine war, the Japanese yen keeps tumbling down, possibly weakening below 135. This could mean yen is losing its safe-haven status.