⁍ Since 1997, a 5% fall in the U.S. S&P500 index was accompanied 76% of the time by yen appreciation.
⁍ In mid-March, when the pandemic shock was at its height, that didn’t happen.
⁍ The inverse 90-day yen-S&P500 correlation has since weakened to near decade-lows.
– The yen’s status as a safe haven during financial crises has long been a well-known one. In fact, since 1997, a 5% fall in the US S&P 500 was accompanied by a yen appreciation 76% of the time, according to a study by Nordea. But during the SARS epidemic and the financial crisis, the yen has barely budged, Reuters reports. “The correlation with stocks didn’t hold during the corona crisis, which is a game changer to how everyone looks at the yen,” says an analyst. “If the yen loses its status as a safe haven, investors will have to look for other currencies.” The yen’s reputation as a safe haven stems from its $3.5 trillion in foreign assets, but it’s also linked to the “carry trade,” in which investors borrow low-yield currencies and sell them for higher-yield assets overseas. That makes the yen prone to periodic spikes; when world markets go into reverse, so do carry trades, fueling a mass rush back into the funding currency to limit losses. But this year’s worldwide interest rates collapse has eliminated the yield discount the yen has held since 1995, when Japanese benchmark rates fell to 0.5%. “If yen shorts from carry trades are going to be much smaller … then the yen would no longer act as a risk-off currency,” says an analyst.
Source: https://www.reuters.com/article/global-yen-carry-trade/analysis-yen-safety-status-at-risk-from-pandemic-era-global-rates-collapse-idUSL5N2GI1Z6