Japanese policymakers have a simple plan:
Destroy the value of Japanese Yen because weak Yen means more exports and high profits for Japanese companies. It's good for economic growth.
It's quite fascinating that they have done everything they can, now even pursuing negative rates, but what has happened - exactly the opposite of what they intended. Japanese Yen instead of weakening has strengthened pretty dramatically in 2016. The reason: It's considered safe haven.
Here's USDJPY daily Chart
Why Japanese Yen is treated as safe haven?
Because Japan is a net international investment surplus country. You will ask what does this mean?
It means that Japanese investors own more foreign assets than foreign investors own of Japanese assets. In fact, Japan is the world's largest creditor. So, when there is turbulence in Global markets - Japanese investors start pulling back like others but their impact on own currency is much higher compared to overseas investors pulling money out from Japan. The higher inflow of money drives up the value of Yen.
Japan ... is a banker to the world. And when risk goes up, you're looking for a safe 'bank ~Martin Schulz, an economist at Fujitsu Research Institute in Tokyo
The Big question Now: What can Japanese policymakers do more to destroy the value of Japanese Yen? They will do what they have to do but they will also hope: US Fed raises rates sooner than later. What Japanese policy makers need: RISK ON environment so that nobody looks for safe haven 🙂
Read more: Trust Your eyes and not ears
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers