What’s going on here?
The yen had its best week in nearly three months, climbing to 154.245 per dollar on Thursday, up from a 38-year low of 161.96 per dollar earlier this month.
What does this mean?
The yen’s sharp rise can be attributed to suspected interventions by Tokyo in early July and traders unwinding profitable carry trades, where they borrow yen at low rates to invest in higher-return assets priced in dollars. A global stock sell-off has also driven investors towards safe havens, boosting the yen’s appeal. Experts suggest that the yen could appreciate further as risk assets continue to devalue. Meanwhile, the Swiss franc, another safe-haven currency, has seen similar benefits, pushing the dollar down by 0.9% this week.
Why should I care?
For markets: Safe havens take center stage.
With global markets in flux, currencies like the yen and Swiss franc have become more attractive to investors. The US dollar index remains stable at 104.29, while attention is shifting to US Personal Consumption Expenditure (PCE) data and the upcoming Federal Reserve meeting. Traders are pricing in potential rate cuts later this year, anticipating 66 basis points of easing.
The bigger picture: Central banks in the spotlight.
The Bank of Japan may raise rates next week, with markets pricing in a 64% chance of a 10 basis point hike. However, the yen’s recent surge might give the BoJ more time to decide. Meanwhile, a currency strategist from BofA highlights significant outflows of cash from Japanese markets into global tech investments. Globally, currencies like the Australian and New Zealand dollars are showing major declines, reflecting the current souring risk sentiment.
