Japanese Yen General Info
According to the Bank for International Settlements, in 2016, trading in the Japanese yen (ISO: JPY) contributed to 22% of total foreign exchange market turnover, making the yen the world’s third most traded currency.
Like government bonds and gold, the Japanese yen is considered a safe haven asset – it is the premier safe haven of the currency world. This means that the yen is likely to increase in value against other currencies during periods of economic uncertainty or when global geopolitical risk is elevated, or during bouts of high market volatility.
Since 1995, against the US dollar, the yen’s lowest valuation came in August 1998 when USD/JPY reached 147.67 (¥100 cost a little less than $0.68). Its post-1995 high came in October 2011 when USD/JPY traded at just 75.56 (¥100 cost $1.32).
The Japanese yen is a crucial part of the ‘carry trade’ – a popular strategy among foreign exchange traders in which they borrow in a currency with a low interest rate and use those funds to invest in currencies paying a higher rate. In recent decades, the most popular way to fund the carry trade has been to borrow (sell) yen due to Japan’s consistently low interest rates (since 1996 Japanese rates have averaged less than 0.5%).JPY Foreign Transfers JPY Travel Money Read our Travel Guide to Japan
Japanese Yen - Recent Performance
In the fourth week of October, one dollar was buying 114 yen. USD/JPY had risen to a 3-month high (yen low) and towards the top of its recent range following Shinzo Abe’s re-election as Japanese Prime Minister. Under “Abenomics,” the Bank of Japan will likely continue with negative interest rates and massive amounts of quantitative easing. For much of the February-October period, USD/JPY traded in a large sideways channel spanning 108 and 114.5-115.
Following Abe’s election victory, EUR/JPY rose above 134 and was within striking distance of September’s high of 134.4 – a breach of which would take the yen to its weakest level against the euro in nearly two years. SGD/JPY also rose to an eighteen-month high of 83.7.
In the six weeks prior to this report, the yen had been the weakest of all G10 currencies, having lost 6% of its value since trading at 107.3 per USD on September 8th. Further to Abe’s re-election, a general reduction in risk aversion had weighed on the currency.
In September, analysts at Citi Bank, ANZ and Societe Generale predicted that the yen would weaken in the fourth quarter. The banks said that Donald Trump’s proposed tax cuts would reignite the US reflation narrative and encourage carry trades generally, which involve borrowing yen at low interest rates and exchanging them for higher-yielding currencies or assets. The banks declined from giving precise yen targets.