Despite all the talking of the Japanese currency and its losing the status of "safe haven", the demand for the Yen rises when the market is unstable.
The Japanese Yen has strengthened significantly against the USD recently. On Friday, the USD/JPY pair was trading at 109.04. By now, the instrument has broken the support level at 109.40, which was considered very significant from the point of view of further sales. The next key support level is at 108.73.
This week, Japan hasn’t published much important statistics. There was an interesting report on the Industrial Production in June, which expanded by 2.2% m/m, although the market has expected a smaller number. Also, Japan published a preliminary report on the GDP in the second quarter, which showed the expansion of the economy by 1.0% q/q. In the previous quarter, the indicator added just 0.3% q/q. However, the USD/JPY pair barely responded to these numbers.
On the whole, the USD/JPY pair will remain rather volatile over the next several weeks. Investors’ sentiments depend directly on the attitude to the USD: the more reasons to avoid risks they have, the more affection they hold for the Yen.
Some time ago, there were speculations on the market that the Yen was no longer considered as a "safe haven" asset. Arguments were different, from the fact that the Japanese currency was too volatile to the BoJ’s approach to the monetary policy. As a matter of fact, the market itself denies these rumors: when the USD gets weaker due to some reasons and investors get rid of unnecessary risks, the demand for the Yen increases automatically. It can be easily seen on any daily chart.
The BoJ’s fiscal approach is sure to raise a lot of questions. The most important of them lies in lack of understanding how the regulator and the Japanese government are going to deal with the national debt, which is growing at an exponential rate. However, since the moment the QE program was introduced, there hasn’t been any official opinions about it. One can only guess: some part of the debt will be refinanced, but the sums are enormous and have to be covered somehow.
At year-end 2016, the foreign debt of Japan was $2,719,000 million, which is 46% of the country’s GDP. At the top 10 of the world’s major debtors, Japan is far from the worst and doing better than the USA, The United Kingdom, and Germany. Anyway, as long as the BoJ’s QE program is working, the national debt will remain intact.
