While the USD/JPY pair has been known to be a safe haven currency due to Japan being a net creditor to the world, its recent sell-off paired with the USD may be motivated by alternative reasons.
United States interest rates on treasury bonds have risen quite significantly YTD with an improved inflation and GDP outlook coupled with a seemingly more hawkish Federal Reserve.
Although global markets experienced a sharp sell-off in the beginning of February, the USD/JPY was relatively muted. Therefore, the Yen's recent strength as global markets have been recovering may be somewhat puzzling.
The rationale behind the Yen's strength perhaps may be the Flow of Funds between central banks. With US interest rates sharply rising, the BOJ may no longer wish to hold as much US-denominated debt, especially with maturities that have significant duration. Therefore, the BOJ may be looking to sell US assets/dollars and look to shift elsewhere, possibly even their domestic debt.
Additionally, the BOJ may begin to taper their balance sheet as global central banks seem to be following the United States Central Bank.
Quantamize highlighted a CurrencyShares Japanese Yen Trust (FXY) bull call spread opportunity - highlighted on our profile that we think may be attractive to multi-asset investors or FX traders who also trade options.
Looking forward to any comments or questions on our analysis.
-Quantamize
United States interest rates on treasury bonds have risen quite significantly YTD with an improved inflation and GDP outlook coupled with a seemingly more hawkish Federal Reserve.
Although global markets experienced a sharp sell-off in the beginning of February, the USD/JPY was relatively muted. Therefore, the Yen's recent strength as global markets have been recovering may be somewhat puzzling.
The rationale behind the Yen's strength perhaps may be the Flow of Funds between central banks. With US interest rates sharply rising, the BOJ may no longer wish to hold as much US-denominated debt, especially with maturities that have significant duration. Therefore, the BOJ may be looking to sell US assets/dollars and look to shift elsewhere, possibly even their domestic debt.
Additionally, the BOJ may begin to taper their balance sheet as global central banks seem to be following the United States Central Bank.
Quantamize highlighted a CurrencyShares Japanese Yen Trust (FXY) bull call spread opportunity - highlighted on our profile that we think may be attractive to multi-asset investors or FX traders who also trade options.
Looking forward to any comments or questions on our analysis.
-Quantamize