Japan’s Yen Doubles Up

Having burnished its traditional image as a global safe haven during the coronavirus pandemic, Japan’s yen is attracting fresh interest as the highest among the three major currencies.

The past few weeks have seen the yen hit multi-month highs as news broke of a Biden presidency and a possible COVID-19 vaccine. Analysts cite two big reasons driving a wave of money into yen markets. In addition, as interest rates in Europe and the United States plunge, Japanese government bonds (JGBs) offer comparatively higher returns.

The change in the Yen was brought about by the U.S. Federal Reserve’s sharp monetary easing, which wiped out returns in dollar-based assets. Japanese investors lost their big appetite for overseas investments as domestic yields became higher than those available abroad.

Following the COVID-19 outbreak, the U.S. Federal Reserve slashed interest rates to near zero. U.S. long-term yields have fallen below 1%, compared to 2-3% prior to 2019.

Most euro zone government debt also yield less than JGBs, with exception of a few southern countries.

Goldman sees the yen rising to 100 in the next 12 months.