The Japanese Yen is a popular safe-haven currency. On Thursday, given positive news it drew impressive buying pressure throughout the Asian trading session. Demand is increasing partly because of increasing geopolitical tensions. Persistent trade fears, particularly the recent U.S. based news, are not helping this trend either. Yet the momentum subcomponent of the USD/JPY currency pair was unable to sustain. It dropped to a new weekly low as the Greenback came under serious downside pressure.
And investors are surely looking to de-risk, they are looking for stable return. Like the US Dollar and Swiss Franc, the Japanese Yen is a standout performer during “risk-off” periods. The relative stability of Japanese government bonds might be enough to strongly increase the allure of the Yen. Over two-thirds are held by domestic investors, who do not flee the market in times of crisis. This new dynamic has only served to reaffirm the Yen’s position as a safe haven currency.
Safe-Haven Demand Fuels Yen Strength
The recent market environment has led to a significant flight to safety, raising the demand for the Japanese Yen. By the end of the Asian trading session, buying interest had ramped up considerably. This increase is emblematic of the heightened global uncertainty over trade negotiations and geopolitical events.
Investors are increasingly fearful of US President Donald Trump’s latest threats on possible tariffs. They are deeply concerned by his skepticism towards attaining a nuclear agreement with Iran. These unknowns have increased volatility in the bond markets and increased the flight to safety to traditionally safe assets.
The market’s response has been significant. At the height of the recent volatility, the USD/JPY pair touched 144.00. That would have been a drop of over 0.35% for the day. This movement highlights a larger trend in which investors flock to currencies that are considered safe havens in times of turmoil.
Technical Outlook for USD/JPY
Overall, the technical indicators surrounding the USD/JPY pair suggest a bearish outlook in the short term. An overnight pullback from a two-week high has only deepened this bearish outlook. The duo fell under the important horizontal support area of 144.55-144.50.
The USD/JPY is having a hard go of it trying to find its rhythm again. Analysts are cautioning that if selling interest remains strong under the Asian session low of 143.70, the pair could find further downside targeting at the 143.00 level. This would set up a possible buy near support at the 142.62-142.60 zone.
On the upside, any rebound would encounter quickly at the 144.55 vicinity. A break above this area would potentially trigger another surge of short-covering. This would again allow the new duo to set their sights at the psychologically iconic 145.00 level. That said, bulls will probably want to see some sort of confirmation of strength past 145.45, which we crossed earlier this week.
Geopolitical Factors Impacting Currency Movements
Global geopolitical factors have created further layers of complexity to currency movements, most notably affecting the USD/JPY pair. Unfortunately, President Trump’s latest tariff threats have eclipsed the positive results of bilateral high-stakes US-China trade negotiations. This reality has sparked even more confusion in global markets.
Reports indicate that Israel may soon launch strikes on Iranian nuclear sites, intensifying fears surrounding ongoing regional tensions. These changes have led to a sense of uncertainty and concern among traders and investors.
“This is the deal you can take it or leave it.” – US President Donald Trump
The market’s reaction is indicative of wider concerns about the state of global affairs and what it means for future economic security. As geopolitical tensions escalate, we can expect currencies such as the Japanese Yen to benefit from these primary safe haven flows.