In the latest client note, the analysts at JP Morgan argued that the Japanese yen is seen losing its safe-haven status over the last three years.
“USD/JPY annual range of less than 10% for three consecutive years.
2019 range less than 8%, the smallest since 1980.
When a risk-on mood was strong, market participants would normally actively engage in the yen-carry trade.
But when risk-off hit “investors would be pressed to close their positions” – to sell the higher-yield currency & buy back yen they had sold, which is why the yen would strengthen in risk-off environments.
But because in recent years the yen is no longer being sold off in the first place, it is not acting as much like a safe-haven currency as in the past.
If interest rates increase in other countries (opening a wider gap with rates in Japan) would encourage yen-carry trades.”