Yen Makes a Comeback as the Currency to Embrace When Times Are Tough

(Bloomberg) -- Investors may pile into the yen even more aggressively during bouts of risk aversion as the global trade outlook gets choppier.

With talks between China and the U.S. taking a turn for the worse, the yen’s “beta to risk” is likely to become stronger, TD Securities foreign-exchange strategist Mazen Issa wrote in a note Monday. That relationship between the yen and risk “has not been as strong as has been the case in the past, but we expect this to be rekindled as equity markets should adjust meaningfully lower.”

Rising U.S.-China tensions and tumbling stock prices have helped push traders toward traditional haven assets like the Japanese currency. The yen surged Monday by as much as 0.9%, the most since March, to 109.02 per dollar.

Issa, who has a “bullish bias” on the yen, said the next major support for the dollar-yen pair is at 108.50, “but a flush towards 105 should not be ruled out.” He also underscored the role of equity repatriation by domestic investors in helping to buoy Japan’s currency.

Yen Makes a Comeback as the Currency to Embrace When Times Are Tough

Equities were pummeled worldwide on Monday and Treasury yields sank after China said it would retaliate with increased tariffs in a tit-for-tat trade battle with U.S. President Donald Trump. The yen was the biggest gainer among major currencies, followed by the Swiss franc, while emerging-market and commodity-related peers took a beating.

©2019 Bloomberg L.P.