The USDJPY exchange rate has pulled back from recent gains and now looks for support as gold takes the currency’s safe haven tag.
USDJPY – Daily Chart
The USD/JPY has support ahead at the previous resistance level of 150.70. That is key to holding the recent gains, or a move towards the 146.61 is possible.
The yen’s status as a safe haven is being questioned by traders, threatening to worsen a recent sell-off to eight-month lows. The yen has been a safe haven in times of economic stress for decades. Japan’s huge current-account surplus and stable political system were seen as a reliable country to keep assets.
However, the status is now under strain due to the Japanese currency’s recent changing trends. Traders have been turning more to gold as they shy away from the fiat currencies of indebted sovereign nations.
The yen suffered last week after Sanae Takaichi’s surprise victory in Japan’s ruling party leadership race.
“Historically, there were times we went long the yen from a hedging perspective, because in the previous cycle, the yen could be quite reliable when there was massive risk off,” said Keiko Kondo at Schroder Investment Management. “Currently, we don’t have enough reasons to be wanting that hedge,” she added.
“I’m not using the yen as a risk barometer much anymore,” said Ken Peng at Citigroup. The yen is now “more of a reflection of the market’s expectations about how much the BOJ will hike rates, and whether Japan’s reflation and growth continues,” he said.
Markets have grown increasingly concerned about shocks in the Japanese bond market. If another period of financial stress arrives, Japan may not experience the same confident flows as it did previously.
The U.S. dollar has risen against the yen since the election but may struggle if ties with China remain strained ahead of the trade meeting at the end of October.
