The Japanese yen has gained nearly 4.5 percent against Aussie and Kiwi this past week, while the low-yielder has jumped 2.76 percent against the euro and 2.33 percent against the British pound. Why? Risk aversion.
In fact, political turmoil has recently emerged, which is usually pure poison for currencies, as Japanese PM Yakuo Fukuda abruptly resigned earlier this week. Furthermore, Japanese economic data has been absolutely abysmal, but yet the low-yielding currency has remained strong against its foreign counterparts. However, with traders fleeing from risk and carry trades, the odds remain in favor of additional Japanese yen gains. A factor that will be crucial to this risk averse sentiment is the status of Fannie Mae and Freddie Mac, as the Treasury Department may announce plans to inject capital into the mortgage giants over the weekend. If this is indeed the case, the news could trigger a bout of flight-to-safety, sending Treasuries higher, stocks lower, and the Japanese yen crosses down.
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Written by Terri Belkas, Currency Strategist of DailyFX.com