Whenever investors run scared, they either turn to gold, bonds or, the Japanese Yen. All these so-called haven assets appreciate mightily during bouts of market stress.
Hence, the Japanese Yen experienced a four-month winning streak from the end of April. A slowing world economy and tariff wars are two good reasons to hide in Yen. Against the US Dollar, the rate rose in favour of the Yen from 112 to 105, a good 700-point move.
Versus the beleaguered Pound Sterling, the rate rallied even further. It surged from 146.0 to 126.0 – a two-thousand point trend!
But is the Yen’s climb out of fuel? One reason is the gradual rise in risk appetite. Last week, I highlighted the upside breakouts in key US equity indices (e.g., S&P500 and Nasdaq). This is a technical sign that new highs may follow. Upside momentum may increase.
And if we look at the GBPJPY’s daily chart closely, noticed the ‘failed downside renewal’ at 126 last week. Failures to reassert a trend often lead to counter-trend moves in the opposite direction. Here, it led to a positive breakout at 130. For the USDJPY, the ‘failed break’ came earlier, on August 26 at 105.0 (see Featured Chart).
Therefore, it is possible that the Japanese Yen may weaken further from here as investors gradually return to risky assets. But a move back to its spring lows is probably overly ambitious. A 50% retracement across most Yen pairs are more realistic.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.