Safe Haven Yen Poised to Rise on the Cusp of Easing

(eToro Blog) With investors’ worries reaching new heights the safe haven currencies are once again seeing a resurgence in demand. Earlier today, the Japanese Yen struck a 2-month high against the “other” safe haven currency (the U.S. Dollar) before retreating. Analysts say that so long as the Eurozone crisis continues unresolved and global growth worries perpetuate, risk appetite will wane as safe haven appeal is whetted.

Over the past quarter, the Yen has appreciated more than 5% against the greenback and though the currency’s rise is of great concern to Japanese exporters, the former Vice Finance Minister of Japan, Eisuke Sakakibara, aka “Mr. Yen” is not. In a recent interview (at the point when the USD/JPY rate was at 79), he said that the Yen was not at an uncomfortable level and had more room for strengthening before it triggers a crisis, and by his estimates that room could be as much as 25% against the greenback.

In Sakakibara’s opinion, Toyota, for example, would be “fine” with the USD/JPY at 79, though Toyota executives might not agree. A too strong Yen erodes profits of goods exported to foreign markets, and about a third of all of Toyota’s products are sent to the U.S. The more the Yen appreciates the smaller Toyota’s profits. Sakakibara specifically mentioned the Yen breaking through 80 as a level which in 1995 triggered a crisis, but he says that that “80” is more like today’s “60.”

Analysts at BNP Paribas confirm that the Yen’s strength has meant a marked disadvantage for Japanese traders. Exports have been lackluster in general, but more so to the Eurozone and even to a fair extent in Asia. In a recently published Eco Flash analysis, BNP is forecasting that that sluggishness in exports is likely to linger, as they expect the Yen to remain at or around current levels. At the same time, import growth is likely to remain robust suggesting that Japan’s trade deficit could widen to ¥5 trillion for the year.

Though the Federal Reserve chose not to unleash a true QE3 last week, analysts haven’t written off that possibility in the near term, given the disappointing data out of and outlook for the U.S. If and when that happens the U.S. Dollar will broadly weaken, and the Yen could see a singular and pronounced spike in safe haven demand. The Japanese government has made it very clear that the Yen’s rise won’t be tolerated but they have surprised markets before, once by intervening and once by not intervening. The question is at what point will the Japanese government feel the Yen’s price has reached an “uncomfortable” level before they react?

Currently the USD/JPY pair is trading at 80.4250, with today’s range 80.0235 to 80.565 and sentiment on OpenBook is largely bullish. OpenBook guru piethein from the Netherlands has a 40.3% stake in the USD/JPY pair which has gained 5.3% for the month; his 17.2% allocation in the CAD/JPY pair has returned higher with 12.9%. The guru, who has 125 copiers as of this writing, profitably closed a pair of longs recently, one with a gain of 21.26% and the other a gain of 2.495 in a profitable SL. Currently, one open long position is showing a 4.59% gain. The guru had a 12.2% profit for last week and 10.4% for last month; for the entire year the guru’s profit was 70.4%.

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