Home NewsForex Market News The worst decline in the yen has passed, and the demand for safe-haven assets has increased |

The worst decline in the yen has passed, and the demand for safe-haven assets has increased |

by WOOWinvest
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The worst decline in the yen has passed, and the demand for safe-haven assets has increased |


Evidence is mounting that the yen’s worst losses may be over as fears of a global recession boost demand for safe-haven assets such as the yen and U.S. Treasuries.

Speculators have trimmed their net short positions in the yen for the seventh week in a row, taking non-commercial net shorts to their lowest level this year, according to the latest data from the U.S. Commodity Futures Trading Commission (CFTC).

Shorting the yen has been one of the hottest trades this year. The Bank of Japan kept interest rates unchanged in an effort to revive the Japanese economy, and the US Federal Reserve (Fed) raised interest rates aggressively to control inflation. The worst-performing G-10 currency in 2019 was about 15% lower against the dollar.

Still, mounting evidence that a cooling manufacturing boom from the U.S. to Asia has fueled investor fears of a global recession and supported traditional safe-haven assets such as the yen and U.S. Treasuries.

In general, U.S. Treasury yields and the yen are inversely correlated. The yen fell sharply after U.S. Treasury yields continued to rise.

However, the U.S. 10-year Treasury yield fell below 2.80% on Friday (Jan 1), while the dollar-yen exchange rate was little changed. Dollar-yen traded around 135 yen in Asian trade on Monday, compared with a June peak of 137 yen.

Citigroup said the fall in U.S. Treasury yields had not yet been fully transmitted to currency markets. “We think there’s reason to believe that the U.S. Treasury rally is sticky,” said Citi strategists Michael Chang and Jabaz Mathai. If so, “the dollar will fall sharply against the yen.”

The Bank of Japan last month decided to maintain ultra-low interest rates and declared its determination to defend its “yield curve control” policy (YCC), which caps 10-year Japanese government bond yields at 0.25%.

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