Japanese Yen’s risk aversion is mostly stronger than the dollar, euro or even Swiss franc. low interest rate, large domestic foreign currency asset position, and good liquidity financial market, made yen become most popular currency.
1. For a long time, Japan has implemented a low interest rate monetary policy, making the yen the preferred currency for arbitrage transaction financing.
With the United States and the European Central Bank acting on negative interest rates, the relative attraction of yen assets is rising. Because in the financial market fluctuates, the Japanese yen has limited QE policy space due to the excessive depreciation in the early stage.
2. A financial market with large foreign currency assets and good liquidity
Japan’s economy is highly securitized, and its stock market and bond market are the second largest in the world, second only to the United States.
Japan’s financial market is also highly open, with foreign securities investment in Japan amounting to 320 trillion yen, accounting for 64% of Japan’s GDP. In terms of holding ratio, foreign investors hold more than 30% of Japanese stocks and about 10% of national bonds. In terms of foreign exchange transactions, as the third largest trading currency in the world, the daily average volume of yen reached US $1231 billion, accounting for 11.5% of the total volume of transactions in the foreign exchange market. The scale and openness of Japan’s financial market have laid the foundation for the safe haven position of yen. As a credit currency, the liquidity of yen is stronger than Gold and other commodities, so it is sought after by global safe haven funds.
Therefore, for investors, when there is negative news in the financial market, the yen can be given priority.