JPY: Current Sentiment Drivers

Latest developments:

March 19 – BoJ kept its policy rate unchanged at 0.10% and the 10 year yield target unchanged at 0%. However, the central bank did raise the target band for yields, allowing them to fluctuate by +/-25bps from target.

March 18 – National CPI for February printed at -0.4% Y/Y for both the headline and core measure, compared to -0.6% for both measures in January.

February 14 – Preliminary GDP for Q4 printed at 3.0% Q/Q and 127% Q/Q Annualised, compared to 5.3% and 22.9% prior, respectively.

Future Sentiment Shifts:

JPY notably strengthened throughout the coronavirus pandemic as markets remained firmly risk off to the benefit of safe havens. Although market sell offs have long since subsided, significant risks still remain as many notable countries continue to fight second waves.

The coronavirus global economic outlook will remain heavily influential to JPY, with the currency likely to once again see a renewed bid from the rising number of second waves and their implications for the global economy.

Primary Drivers:

Risk Tone – With a consistently positive current account and incredibly low interest rates in Japan, JPY has become synonymous with the term safe haven. As the world’s leading creditor nation, times of uncertainty results in repatriation flows, supporting JPY. At the same time, as investors often use JPY as a funding currency due to Japan’s low interest rates, investors are often forced to buy JPY to close their risky positions when market’s shift to risk off, further supporting the currency.