Yen is a safe haven
Dollar/yen is back at the 118 handle. The yen has been slowlly and steadily climbing off the floor. A lot of the yen's strength can be attributed to the selloff in stocks and the fact that the yen has traditionally been a safe haven. The Swiss franc, too, but because of the heavy handed intervention by the Swiss National Bank traders are more fearful of buying Swiss francs these days.
The yen's rise is not only due to the fall in stock markets, I believe. It is also due to the fact that Japan's trade deficit is shrinking and about to shrink much further. I base this on the recent restart of Japan's nuclear reactors after being dormant since the Fukushima quake back in 2011.
Restart of Japan's nukes a positive for the yen
Since the quake and the shutdown of Japan's nukes, the country’s power generation has had to come primarily from imported oil. This has put Japan’s current account into a steep and rare, deficit. The yen followed this lower with additional pressure coming from market participants who saw the Bank of Japan's ongoing Quantitative Easing as "yen printing."
Traders sold yen on false premise
A word on this whole yen printing meme. It hasn't been happening. It's a fallacy. As I have explained many times, quantitative easing, along with all monetary measures, are basically nothing more than asset swaps. There was no yen printing, however, the large trade deficit, which necessitated the accumulation of dollars by Japanese importers was the culprit being the yen's decline. Large exporters were also setting prices lower in yen terms to sustain export sales.
Even though the restart of the nukes will be slow and take time (only several are up and running out of the 50 or so total) the forex markets will probably discount an improving current account balance by marking the yen higher.
Collapse in oil prices bullish for yen
There is another reason, too, and that is the steep fall in the price of oil. Even if Japan’s nukes come back on line ever so slowly, the sharp drop in the oil price over the past year has not fully been factored into the yen as of yet. That still has yet to happen.
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