Why JPY is bullish when there is risk aversion? | Forex Factory

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Why JPY is bullish when there is risk aversion?

  • #1
  • First Post: Edited 1:32pm Dec 14, 2007 7:48am | Edited 1:32pm
I would like to know why the money run to the Yen when there are bad news, stocks plunge, etc. I've read many times that investors run away from risk and hide in safe currency... but why JPY is safe?

For me, it would make more sense the EUR to be safer because it represent a strong force of many powerful countries, the Yen is the currency of a powerful country but it's only one, and small, could dissapear with a big bomb in a war, or even with a tsunami or an earthquake, for me, that's unsafe.

Of course my logical deductions are crap in this case because the market doesn't behave acording to them, so I look forward to some comments.

Thanks.
Ado Whether you believe you can do a thing or not, you are right.
  • #2
  • Dec 14, 2007 1:35pm Dec 14, 2007 1:35pm
Ok, I got an answer now, so I thought It would be better to reformulate my question.

Up to now, what I understand is, the yen goes bull when dark clouds, not because is safe but because other currency/funds/stocks look worse, so, the investors take money out of those last, and return it from where they borrowed (yen). It makes more sense to me.

Do somebody has other point of view?
Ado Whether you believe you can do a thing or not, you are right.
  • #3
  • Dec 14, 2007 1:52pm Dec 14, 2007 1:52pm
Market is much more reassessing the dollar than trading risk.

This week was marked by the frustration with the 25bp cut that was followed by a "inflation remains a worry" statement that was followed by strong PPI and CPI.

To worsen the rate cut scenario, the Central bank's plan to help the credit was badly received from the market.

And also, this plan was perceived as ALTERNATIVE to further rate cuts instead of a PARALLEL solution.

Put them all together and we have US rate cuts out of the table and market jumping into the cheap dollar rather than anything else...

That's my view
  • #4
  • Dec 15, 2007 9:23am Dec 15, 2007 9:23am
Quoting cesarnc
Market is much more reassessing the dollar than trading risk.

This week was marked by the frustration with the 25bp cut that was followed by a "inflation remains a worry" statement that was followed by strong PPI and CPI.

To worsen the rate cut scenario, the Central bank's plan to help the credit was badly received from the market.

And also, this plan was perceived as ALTERNATIVE to further rate cuts instead of a PARALLEL solution.

Put them all together and we have US rate cuts out of the table and market jumping into the cheap dollar rather than anything else...

That's my view
I guess that's why become a good fundie trader is that difficult, the most I read the less I understand, it's a hard job to know how the market will react to the news... But up to what I understand in your post, you are saying that JPY rallies because risk aversion are packing bags to take some vacations?
Ado Whether you believe you can do a thing or not, you are right.
  • #5
  • Dec 15, 2007 11:59am Dec 15, 2007 11:59am
Anyone correct me if I'm wrong but I believe it's simply do to the pairing of currencies. When people have less faith in the dollar they sell it forcing other currencies up, in this case JPY. Also, look at the Jap economy...virtually breakeven. CHF is the savehaven, not JPY.
  • #6
  • Dec 15, 2007 12:41pm Dec 15, 2007 12:41pm
well my view is that if u long cfds, u pay interes per day, so it is wise to get this interest back so u can hedge it with carries, and u get them somewhat back...
its just money
  • #7
  • Dec 15, 2007 1:07pm Dec 15, 2007 1:07pm
Quoting Ado
(...) it's a hard job to know how the market will react to the news...
It's easier to check the reaction first and jump in the bandwagon than anticipating what the markets will do.

Markets react the news depending on what these news tell about the broader picture - confirm, deny, whole change of events, things like that.

25bp cut + "inflation a worry" + CB's plan + strong inflation = no more rate cuts in the short term (change of events).
  • #8
  • Dec 15, 2007 5:50pm Dec 15, 2007 5:50pm
Quoting renegade7
CHF is the savehaven, not JPY.
I've read that also, but when the bad news like subprime troubled institutions, bad economic releases, the JPY rallied crazy; but now I have another perspective.

Quoting de123
well my view is that if u long cfds, u pay interes per day, so it is wise to get this interest back so u can hedge it with carries, and u get them somewhat back...
Makes sense, I think I can see that in the map; if there's a bad landscape, take mone out of cfds, and at the same time, take money out of the interest hedge in the carries, free fall.

Quoting cesarnc
It's easier to check the reaction first and jump in the bandwagon than anticipating what the markets will do.

Markets react the news depending on what these news tell about the broader picture - confirm, deny, whole change of events, things like that.
I guess that's something that can be achieved with experience, being able to read between the lines and select the important point trough the rest of garbage. When I take a look at Bloomberg, Marketwatch, FT, broker analists etc. I see the notes like the horoscopes in the gossip magazines, nobody agrees and has the same view.

Thanks all for your feedback
Ado Whether you believe you can do a thing or not, you are right.
  • #9
  • Dec 15, 2007 6:25pm Dec 15, 2007 6:25pm
Quoting Ado
I've read that also, but when the bad news like subprime troubled institutions, bad economic releases, the JPY rallied crazy; but now I have another perspective.



Makes sense, I think I can see that in the map; if there's a bad landscape, take mone out of cfds, and at the same time, take money out of the interest hedge in the carries, free fall.



I guess that's something that can be achieved with experience, being able to read between the lines and select the important point trough the rest of garbage. When I take a look at Bloomberg, Marketwatch, FT, broker analists etc. I see the notes like the horoscopes in the gossip magazines, nobody agrees and has the same view.

Thanks all for your feedback
Hey ADO,

Can you go a bit more in depth on your comment regarding CHF safety vs JPY? I've always considered CHF because of political statability and neutrality to everything global

Thanks
  • #10
  • Dec 15, 2007 9:14pm Dec 15, 2007 9:14pm
Normally the risk aversion would enough to put a bullish tone on the JPY, except the dollar has been extremely bid the past 2 days that it was able to overwhelm any selling pressure that came from the risk aversion

The only currency that was left unscathed happened to be the loonie
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  • #11
  • Dec 15, 2007 9:31pm Dec 15, 2007 9:31pm
Quoting Ado
Ok, I got an answer now, so I thought It would be better to reformulate my question.

Up to now, what I understand is, the yen goes bull when dark clouds, not because is safe but because other currency/funds/stocks look worse, so, the investors take money out of those last, and return it from where they borrowed (yen). It makes more sense to me.

Do somebody has other point of view?
Hi Ado,

I think you had it right here. The yen has a very low interest rate so when times are good and people are looking to take some risks they will borrow yen and buy other assets that they expect to get a higher yield with such as other currencies that earn a higher interest rates, stocks, etc.

When things go bad however such as what happened in the subprime market traders unwind those positions and buy back the yen that they sold causing the yen to rally. They unwind their positions either because they become more risk averse or because they are forced to because of losses and the resulting margin calls.

Hope that helps.

FXTrader1979
  • #12
  • Dec 16, 2007 1:43am Dec 16, 2007 1:43am
Quoting Ado
For me, it would make more sense the EUR to be safer because it represent a strong force of many powerful countries, the Yen is the currency of a powerful country but it's only one, and small, could dissapear with a big bomb in a war, or even with a tsunami or an earthquake, for me, that's unsafe.
The yen's negative aspects which you said are the reason behind the weakness of Japanese yen. Of course I also understand it, and I also tend to sell yen when times aren't tough.
(As FxTrader1979 mentioned before, JPY is a taking currency to financing of investment in global-scale dimensions.)

I usually pay attention to military situation of each country, if I can say something as a Japanese, Japan must place the Japan-US alliance at the center of Japan's Asia policy forever(Japan is a key US ally).
About situation in the Far East, some people often concern about Communist China's military power and missiles/nuclear facilities in the communist North(North Korea) though, they(imaginary enemies) are sure to know the stationing of US forces(i.e. world's strongest military) in Japan. Well, I usually tend to talk to my American friend who works in the Department of Defense and will return to Japan about many topics.
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  • #13
  • Dec 16, 2007 9:04am Dec 16, 2007 9:04am
Quoting Fumafuma
I usually pay attention to military situation of each country, if I can say something as a Japanese, Japan must place the Japan-US alliance at the center of Japan's Asia policy forever(Japan is a key US ally).
About situation in the Far East, some people often concern about Communist China's military power and missiles/nuclear facilities in the communist North(North Korea) though, they(imaginary enemies) are sure to know the stationing of US forces(i.e. world's strongest military) in Japan. Well, I usually tend to talk to my American friend who works in the Department of Defense and will return to Japan about many topics.
Hey Fuma, thanks for posting - I don't quite understand what you're getting at. Are you saying that although JPY has some "assumed risk factor", that it doesn't really matter because the U.S has large forces stationed there and thus they are to some extent a safehaven? Or did I completely read that the wrong way...
  • #14
  • Dec 16, 2007 9:38am Dec 16, 2007 9:38am
well the main question is why the japan government doesnt want to have yen strong, naturally their compentivnes would be screwed if they do, is my guess. If they dont export, they wont manage to survive. So growth is before currency,...still,..that i think will change as soon as we found out when are the general elections held in japan,...that will be a sign to start looking for strenght of yen, and this i think will be devastating to their growth temporally, and the oposite effect to their currency,...do we have any insights over that issue fumafuma?....
its just money
  • #15
  • Last Post: Dec 16, 2007 4:21pm Dec 16, 2007 4:21pm
Quoting renegade7
Hey ADO, Can you go a bit more in depth on your comment regarding CHF safety vs JPY? I've always considered CHF because of political statability and neutrality to everything global Thanks
I agree with you in the CHF, is the way I've been taught. I made the JPY link to safety when the big movements in the subprime mess, the bad news, etc. but now I'm realizing that the Yen rallies happen not because the safety of the Yen but because the return of borrowed cheap capital that was invested in riskier more yielding assets.

Quoting Fumafuma
I usually pay attention to military situation of each country, if I can say something as a Japanese, Japan must place the Japan-US alliance at the center of Japan's Asia policy forever(Japan is a key US ally).
About situation in the Far East, some people often concern about Communist China's military power and missiles/nuclear facilities in the communist North(North Korea) though, they(imaginary enemies) are sure to know the stationing of US forces(i.e. world's strongest military) in Japan. Well, I usually tend to talk to my American friend who works in the Department of Defense and will return to Japan about many topics.
That's interesting , also what de123 mentioned...
Ado Whether you believe you can do a thing or not, you are right.
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