The yen is set to regain its status a preeminent haven currency after years of dollar dominance as the Bank of Japan normalizes policy and the inflation shock wanes, according to Barclays Plc.
(Bloomberg) — The yen is set to regain its status a preeminent haven currency after years of dollar dominance as the Bank of Japan normalizes policy and the inflation shock wanes, according to Barclays Plc.
While the dollar became the dominant refuge in macro shocks in recent years, signs of the yen’s return as a haven have surfaced of late with the Japanese currency demonstrating strength during peak periods of risk aversion sparked by financial market turmoil, analysts including Shinichiro Kadota and Lhamsuren Sharavdemberel wrote in a report.
Moreover, prospects for the BOJ to remove its policy of yield-curve control in coming months should help strengthen the currency, they said. The currency was around 134 per dollar in late Thursday trading in New York — around 2% weaker than it began the year — as investors braced for the first policy decision under new BOJ boss Kazuo Ueda on Friday.
“The yen is regaining its allure as a safe haven as the BOJ mulls an end to YCC and the global inflation and energy shock of 2022 fades,” the analysts wrote. They expect the currency to appreciate to appreciate in the coming year, reaching around 123 per dollar in the first quarter of 2024.
The yen has faced headwinds from higher energy prices and a worsening rate differential as global central banks hiked rates to contain inflation. Selling pressures should recede as energy prices fall and the global hiking cycle slows, according to Barclays.
“If global economic conditions deteriorate to the point that the BOJ shies away from YCC revisions, we would expect other central banks to begin easing,” the analysts said. “Yen strength will then be driven by tightening rate differentials and appreciation pressures could actually intensify, pushing USD/JPY below 120.”
Despite short periods of recent gains, the yen is still down more than 2% this year. The BOJ is expected to keep policy unchanged this week.
Read: Former Deputy Chief Sees Chance of BOJ Tweaking Forward Guidance
Read: BOJ’s Ueda to Keep Easing With Market Eyeing New Move: Day Guide
(Updates throughout.)
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