With the US dollar (USD) / Japanese yen (JPY) having taken such a sharp fall since early August, the correlation with risk has been substantially weakened. Since June, equity markets have experienced a consistent bull trend and show no signs of reversing any time soon. This divergence is viewed as an explanation for the lose of correlation. Due to this, the dollar has come to replace the yen as the top choice in funding currency and created difficult for those wishing to predict the yen’s movement. Traditionally, the yen keeps a negative relationship to risk because the Bank of Japan keeps rates very low to raise demand for exports.
A new political administration could potentially change this traditional risk relationship for the yen because those now in power have long proclaimed the benefits of a stronger yen while campaigning for election. On the other hand, US policy decisions have begun to have increasing influence on price action and may change whether or not the dollar ends up being a funding currency. New Financial Minister Hirohisa Fuji has publicly announced that he does not support a weak yen, and the Democratic Party of Japan is expected to push for
that stronger yen to help households be able to afford imported goods more easily as they had promised during their campaigns.
0 Responses
Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.