Japanese Yen Performance During The Pandemic

The Japanese Yen (“JYP”) is widely considered a safe haven currency, i.e., a currency that appreciates when global investors’ behaviour becomes more risk-averse or economic fundamentals are more uncertain. Many examples illustrate that appreciation of the Yen during episodes of increased global risk aversion is recurrent.

The Yen is relatively steady by hovering in the narrow range of 1 USD = 105-115 JYP before the pandemic. Nevertheless, we forcast a downside move of the Yen to 1 USD = 113 JPY and then to 115 JPY by end of the year. Let's study the following charts to find out the downsloping moving averages since Jan 2021. How can Japanese property investors take the advantage of this downtrend?

(Source: Xe US Dollar to Japanese Yen Exchange Rate Chart Jul 31, 2021)

Before the pandemic hit Japan at the start of March, the Yen experienced a significant rise to 1 USD = 103.11 JYP which reached the highest point after the huge appreciation in Sept 2016. However, the Yen suffered hard from the spread of the pandemic and the slowdown of the global market in which the performance is similar to all the currencies. It leads to a sudden drop just after the appreciation in Mar 2020. However, the recovery is remarkable that the Yen steady rose and even reached 1 USD = 102.68 JPY on Jan 2021. Starting from Feb 2021, it depreciated back to the range of 1 USD = 105-110 JYP and keep the exchange rate to around 1 USD = 108-110 JYP during the summer months.

Possible Reasons Behind

The sharp rise in March 2020 is due to the safe-haven nature of the Yen. To avoid risks during the pandemic, there was a huge influx in investment. Halo Financial gave out another possible reason: the oil price slashes near 30% after the OPEC supply deal failed to come through, which encouraged investors to flock to less risky currencies such as the Yen.

In August 2020, Japanese Prime Minister Abe resigned which leads to the appreciation of the Yen. Concerns about a possible shift away from Abe’s expansionary economic policy, known as Abenomics, drove the move in the safe-haven currency. According to Exchangerates.org, the reason for the growth after Fall 2020 may be related to the uncertainty on whether the loose policy of the Bank of Japan would be continued. The Daily Forex also suggested that the Yen has been favoured by the weakness of the USD during the end of 2020.

In 2021, the US economy is improving (the DJI average index was rebounded from below 20,000 in Q.1 2020 to over 35,000 in August 2021) with some signals of persistent inflation. We believe that the US federal reserve will consider raising interest rates in early 2022. As the Bank of Japan still retains the -0.1% interest rate, we predict that more traders will attempt to short the Yen by pulling the price below 1 USD = 115 JPY in Q.4 2021. 

How Will It Influence Investors’ Decision?

The steady currency indicated a stable economic environment. The Yen as the hedging currency widely accepted by the globe showed that Japan’s economy will be less affected by the global market. Under this circumstance, we suggest that any overseas investors can take the advantage of weak Yen to enter the Japanese property market. From the chart of the exchange rate from 2017 to 2021, the Yen is relatively low. This is a golden opportunity for any investors who are interested to purchase property in Japan at a lower cost.