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Why YEN is favored currency & could hit 95 ?

August 8, 2016

So far the moves in are quite in line of my July 10 forecast. JPY tested my target around 100 levels before correcting towards 107 and now looking good to test and break 100 levels convincingly in coming weeks/months after minor correction.
Similarly there is no change in view, as Pound Sterling is likely to take sever beating in coming months that will have spillover effect on EURO.

For Earlier Comments on CURRENCIES, please see link…

Why Japanese Yen is the most Popular Currency ?

JPY @ 102.30 = One always wonder that why despite all odds against Japanese currency it is investors most favored currency.
It is especially popular especially for carry trade. The estimated size of Yen carry trade is well over USD One Trillion, which is an uncovered interest arbitrage business. Basically it is all about financial engineering. Transaction is done against cheap borrowings of a currency offered at low interest rates, which is converted into high yielding currency or bond.
Interestingly, Yen is frequently able to gather momentum and always look threatening to challenge BOJ, though its economy is constantly struggling against Recession and Deflation. Japan’s Public Debt ratio against GDP is 249 pct, which is highest in the world.
Some of the causes that have led market to believe YEN as a safe-haven currency are because of below market expectation of BOJ Stimulus package, inconsistence Fiscal and Monetary Policy with no threat of intervention at current levels. FED delay in hiking of its interest rates and lower bond yields, negative interest rates in many of the major/large economies and Euro-zone uncertainty after Brexit are some of the known common factors that will help Yen to gain sharply against USD.
But more importantly a big supportive factor that forces Japanese investors to rush for YEN purchase is when they decide to liquidate part of their exposure of foreign assets at the time of uncertainty. It is estimated that the size of foreign assets are worth nearly USD 3.5 Trillion USD, which is larger than the foreign investor’s investments in Japan.
Further, decade old close to zero interest rate policy also encourages borrowers to avail cheap loan, which is why JPY is the most popular currency for carry trade.
In context to present Brexit/Euro-zone scenario, in all probability until Article 50 is invoked, threat will loom, as Brexit is likely to add to the existing trouble in the region, which will make investors jittery and nervous, so Yen demand will stay for longer period.
Any corrections will provide good opportunity to buy Japanese currency, which should not surpass 105-107 zones and until 108.50 surrenders.
Hence, JPY will continue to test BOJ nerves and is most likely to gain beyond 95 levels versus US Dollar in Medium to Long Term unless Japanese Central Bank decides to intervenes aggressively or provide excessive liquidity.

GBP @ 1.3051 = Though, apparently overall economic condition is stable, as its unemployment rate of 4.9 pct is lowest in decade, consumers are spending, but Brexit Vote has caused lot of uncertainty, as decline in overseas investments will most likely lead to economic slowdown.
Bank of England did not wait for long to offer boarder monetary package sensing changeover could bring trouble in future, as Britain decided to exit European Union.
It slashed its key Discount Rate by 25 basis point and is willing to allow inflation to overshoot a bit. BOE decided to increase the size of its asset purchase by nearly Pound Sterling 160-170 Billion that includes Purchase of (Government & Corporate Bond plus Term Funding Scheme).
BOE has certainly opted for a loose monetary policy or unconventional monetary policy that will push Pound Sterling to new lows in next few months. However, Pound should not close above 1.3580 in Medium Term.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction). 


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