Can Yen Profit from Economic Uncertainty?

The Japanese yen is considered a safe currency, which makes it attractive in the times of the economic instability, like nowadays. While its appreciation slowed compared to the beginning of this year, and it even weakened a little versus some other currencies during the summer, the yen remains very attractive currency for those who desire safety. Will it retain its value or it’s time to sell the currency while it’s still highly priced? The answer is hugely depends on the risk sentiment of the traders, which can be easily changed by any economic news.

The demand for a safe haven won’t likely to go away anytime soon. The news from the US, especially the slowdown of the manufacturing and the unexpected surge of the unemployment, fueled the fears of the double-dip recession. The data from Europe, while reduced the pessimism about Eurozone previously, wasn’t too encouraging either. Even the support from Asia, which is the main reason to be not overly pessimistic about the global economy these days, waned as China slowed its economic expansion. As we see, the necessity for a safety is undoubted.

The problem is that weaker global economy means weaker demand for exports, which may hurt the export-driven economy of Japan. And this may, in turn, weaken the Japanese currency. The economists estimated, before the government report on August 25th, that the exports expanded 21.8 percent in July from a year earlier, slower than in the previous month — 27.7 percent. Of course, the possibility of the intervention by the central bank also weights on the currency. The investors speculated that the intervention may be discussed on the meeting of Naoto Kan, the Prime Minister of Japan, with Masaaki Shirakawa, the Governor of the Bank of Japan. The meeting was delayed, though, and may be replaced by the telephone conference instead as the officials is concerned that the public opinion may consider that the government has too much influence on the central bank’s decisions. Nevertheless, Yoshihiko Noda, the Minister of Finance, said that he is going to meet with Kan and expressed the desire to cooperate closely with the central bank.

USD/JPY may remain in the range 85.00—86.20 for some time, unless a breakout will occur. The yen should rise to approximately 107.50 per euro before encountering a resistance. Against the pound the yen may encounter a resistance at 131.20 before rising further.

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