Barclays sees the yen regaining its preeminent safe-haven status after years of dollar dominance as the Bank of Japan normalizes policy and the inflation shock recedes.
Barclays analysts Shinichiro Kadota and Lhamsuren Sharavdemberel said that while the U.S. dollar has been the main haven from macro shocks in recent years, signs of the yen's re-emergence as a safe-haven currency have surfaced recently, at a time of peak risk-off sentiment sparked by financial market turmoil, which has given the yen strength. Additionally, the prospect of the Bank of Japan removing its yield-curve control policy in the coming months should help the yen strengthen, they said. In late New York trading on Thursday, the yen was trading at about 134 per dollar, down about 2 percent from the beginning of the year. Investors are bracing for the first policy decision of new Bank of Japan Governor Kazuo Ueda after taking office on Friday. “With the Bank of Japan considering ending YCC and global inflation and energy shocks receding in 2022, the yen’s appeal as a safe-haven currency is recovering,” analysts wrote. They expect the yen to appreciate over the coming year, reaching around 123 yen per dollar by the first quarter of 2024. The yen faces headwinds as global central banks hike rates to curb inflation, rising energy prices and widening interest rate differentials. Selling pressure should ease as energy prices fall and the global rate hike cycle slows, Barclays said. "If global economic conditions deteriorate to such an extent that the BOJ shy away from revising the YCC, we expect other central banks to start easing," analysts said. "A stronger yen will be driven by tighter spreads and appreciation pressures could actually intensify, pushing USD/JPY below 120." Despite the yen's recent short-term gains, it is still down more than 2% this year. The Bank of Japan is expected to keep policy unchanged this week.
