Here’s a Chart That Proves Yen Is The King of Safe-Haven Currencies

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to… read more.
on Mar 10, 2020
Updated: Apr 3, 2020
  • Global markets in turmoil amid the coronavirus outbreak and oil prices crashing
  • The Japanese Yen has gained more than 4% on the Swiss Franc in the past few weeks
  • The SNB has the highest negative interest rate among major central banks

In a time of market turmoil, when investors are moving away from high-yielding assets, there is a list of perceived safe-haven assets that attract investors’ funds. In case of a regional war, pandemic, or global geopolitical turmoil, the list of safe-haven assets remained the same over decades e.g. gold, yen, franc, government bonds etc.

The past few weeks have provided us with a battlefield to see where investors flee when things go south. As expected, the investors’ funds fled to gold and bonds, but in the Forex world, there was only one winner: the Japanese yen.

Yen winning the fight

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The Bank of Japan (BoJ) Governor Kuroda said today that the most recent bid that supported their national currency has been driven largely by the demand for safe-haven assets. He doesn’t seem surprised, and the yen gaining almost 1,000 points against the USD hasn’t surprised analysts either.

“This is all a combination of both the oil story and the coronavirus,” said Edward Moya, senior market analyst, at OANDA in New York. “The overall take is that we are going to have a lower oil price environment for the foreseeable future. This is a big risk event and is putting a lot of fire into risk aversion and we will see this for a couple more weeks,” he added.

Both the yen and the franc are expected to stay bid in the coming days and weeks amid the coronavirus outbreak and the oil price war between Russia and Saudi Arabia. Still, it looks like there is only one winner in the environment of deteriorating risk appetite.

“The new coronavirus is threatening the summer Olympics in Tokyo. We see no relief on the horizon for Japan, and we expect the yen to remain strong for the near future,” said Kiran Sakaria from Handelsbanken.

Looking at the CHF/JPY chart, we see that the yen dominated franc in the periods when stock markets recorded deep losses. Hence, investors are turning toward the Japanese yen when things go south. Yes, the Swiss franc is also bid but not even close to the yen.

CHF/YEN vs S&P 500 comparison (TradingView)

The CHF/YEN (blue line) started falling down a day after the stock market started a correction. Ultimately, the pair hit levels which are more than 4% lower compared to the highest price the pair recorded on a day when the correction had started. On the other hand, the S&P 500 lost nearly 20% in the same time period.

High negative rates are doing their part

If you look at previous occasions, CHF/YEN was almost always trading near the same levels as both currencies were bid in the light of global concerns. Some analysts, including Sakaria, believe that the high negative rates set by the Swiss National Bank (SNB) have pushed away potential safe-haven searchers.

“In recent weeks, the franc has been very stable, and the exceptionally low-interest-rate appears to be deterring those who would otherwise be seeking a safe haven in the currency in worrying times. The proximity of Switzerland to northern Italy may also be affecting the value of the franc,” added Sakaria.

The negative rates, introduced by the SNB in 2014, are actually proving to be a good move by Swiss regulators. The BoJ has also introduced negative rates but only -0.1%, compared to -0.75% of the SNB.

Thus, it is clear that those investors searching for safe-haven assets have looked elsewhere as investing in the Swiss franc would see them lose more money compared to the Japanese yen.

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