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JPY Daily News
Yen is Still a Safe Haven Currency
The Japanese economy has continued to recovery in the face of the earthquake and tsunami that struck the nation in the spring. Q3 GDP rose by 1.5% though the revised Q2 data shows the economy contracted -0.5%. Now the island economy will likely face headwinds from both flooding in Thailand and a gloomy outlook for the euro zone. This negative forecast was highlighted in the recent BoJ Monetary Policy Statement.
Despite the gloomy outlook the JPY continues to see inflows from investors seeking to park funds in times of high market stress. Investors choose the JPY because the country has a current account surplus and Japanese government bonds (JGB) have a large and liquid market. Japanese bonds also offer investors the potential opportunity to gain from JPY appreciation. Keep in mind that 10-year JGB only returns a tiny 0.96%. Thus traders have the ability to safeguard their funds and make a forex play at the same time during periods of low risk sentiment.
Traders should also remember that once the SNB put a floor underneath the exchange rate of the EUR/CHF it took away one of the market's primary safe haven currencies. Also the potential for QE3 from the Fed makes holding the USD undesirable. Given a lack of safe haven currencies decent economic fundamentals, and a strong bond market the JPY may make for an attractive play in the markets.
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