Tuesday, 24 February 2009

Yen losing safe haven status

The relationship between the Japanese yen and the US stock market is changing quite significantly. Whereas the yen has been seen as a safe haven play where investors have parked funds when US asset prices, especially stocks, are declining the inverse now seems to be happening as the yen is falling in sync with declining US stock prices.

This has been observed in an article today from Bloomberg

“The yen appears to be losing some of its safe-haven status,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s economic and political situation is poor.”

The correlation between the dollar-yen and the Nikkei 225 was minus 0.89 since Feb. 16 when a report showed Japan’s economy shrank at an annual 12.7 percent pace in the last quarter, the most since the 1974 oil shock. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep.

“The correlation has broken down, because the drivers are now changing,” Stannard said. “Dollar-yen in particular will continue to move quite sharply higher.”

Demand for the yen as a haven also declined after U.S. financial regulators said yesterday they will begin examinations this week to determine if banks have enough capital. Citigroup Inc. and Bank of America Corp. jumped on the announcement even as the S&P 500 closed at the lowest level in 12 years.

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