The yen has entered the New Year in much the same form it exited 2018. It climbed on Wednesday to fresh long-term terms highs against many major currencies and is predicted to strengthen further in both the short and long term.
The yen is flying.
With further gains on Wednesday, the yen’s value has reached levels not seen in more than 2 years relative to both the Australian dollar (¥76.15) and Canadian dollar (¥79.8), in more than 8 months versus the pound (¥137.7), and in more than 6 months versus the US dollar (¥108.9) and euro (¥124.2). Against each of the aforementioned currencies, percentage gains over the past month amount to 9.8, 7.9, 5.4, 4.4 and 4.0 percent.
As was the case towards the end of 2018, the yen is benefitting from strong safe-haven flows.
Concern among investors is undoubtedly increasing, especially towards the ongoing US government shutdown and amid signs that the global economy is slowing down.
More specific causes for concern this week include the Caixin PMI for China’s manufacturing sector, released on Monday, which slipped into contraction territory for the first time since May 2017, and persistent reports that President Trump will soon enact an executive order that would ban US telecoms companies from using equipment manufactured by Chinese technology giants Huawei and ZTE. Any ban on Chinese products would almost certainly bring retaliation from China, leading to a further deterioration in trade relations between the world’s two largest economies.
With conditions as they are, they yen is expected to appreciate further in both the short and long term.
“The yen is quite undervalued from a long-run historical perspective,” Barclays head of FX strategy, Marvin Barth, told Bloomberg this weekend.
“Rising market volatility may underpin JPY,” a Citibank report said on Monday.
In its December-14 forecasts, Commerzbank lists USD/JPY at ¥104 at 2019 year-end, with further yen appreciation towards ¥102 into 2020.