Author: Amar – Technical Analyst

While the Bank of Japan claims to be alone dove among its peers, the yen claims its status as the world’s most popular funding currency. However, the trade comes with risks, as the yen could once again become a safe haven if tensions escalate in Ukraine or an aggressive Federal Reserve triggers a sell-off in the market. The yen’s conventional role as investors in low-cost currencies that can borrow and use to fund “carry” trades in high-yield markets has been diluted somewhat during the coronavirus pandemic, as other banks’ power plants cut their rates even to zero.

According to a poll by Reuters Tankan, Japanese manufacturers’ business confidence fell to an 11-month low in February as measures to contain the pandemic and high raw material costs hurt sentiment. Industrialists were less optimistic about the next three months than in January, while the outlook for service-sector companies held up, according to the survey following the Bank of Japan. Thus, this will also affect the strength of the currency for any upcoming potential investments by the investors.

With the United States warning about an acceleration in the buildup of Russian forces on the Ukrainian border, the yen has been rising. There are also worries that Japanese policymakers may become concerned about the economic impact of a weak yen, particularly given the country imports the bulk of its energy and oil prices are at seven-year highs. Inflation has crept closer to the BOJ’s 2% policy target, which raises prospects the BOJ will loosen its grip on yields, and rising yields torpedo yen funded trades.