Yen Reclaims Its Status as a Favoured Foreign-Exchange Destination Amid Global Banking Crises

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The Japanese yen is making a resurgence in the foreign exchange market after the banking crises in the US, and Switzerland weakened the dollar and franc’s standing as safe havens.

This reversal of fortune marks a stark turnaround for the currency, which only a few months ago needed support from policymakers to revive it from an all-time low.

Currently, the yen is the best-performing primary currency of the month, and investors such as DWS Group, JPMorgan Chase & Co., and Morgan Stanley are bullish on its prospects. This renewed interest in the Japanese currency could stabilise global markets during these turbulent times.

“The yen was extremely weak last year, but we’re seeing a reversal of that — it’s one of the major trends that we’re seeing this year,” said Russell Investments’ head of currencies, Van Luu.

Analysts suggest there is likely to be a shift in currency dynamics with the central bank policies, as the Federal Reserve is expected to adjust its higher-for-longer rates mantra. This may lead to an appreciation of the Japanese yen and euro against the US dollar. UBS’s takeover of Credit Suisse further fueled expectations of policy tightening in Europe, which could further strengthen the euro. 

“We think bank sector stress should be more concentrated in US regionals and continue to favour the euro and yen as major beneficiaries of waning US exceptionalism,” UBS analysts said.

The yen declined by 1.35 per cent last week but is still up 3 per cent in March despite Japan’s lack of positive economic data. Investors and traders remain optimistic that the Bank of Japan (BOJ) will normalise its policy, which has been near zero in recent years. 

It may be too early to tell if the Japanese yen will stay strong in times of crisis, but one thing is clear: the currency is back and ready to reclaim its place as a preferred foreign-exchange haven. 

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