Insights 
VT 
The Japanese Yen has shown a 0.2% gain due to increased trade-related risk aversion, influenced by concerns regarding the US-China relationship. Recently, the Yen’s traditional role as a safe haven has seen variations, yet current gains reflect a restoration of its historical ties to market sentiment.
Developments within Japan, such as potential changes in parliamentary coalitions, may soon impact the Yen’s movements once more. The USD/JPY pair faced a setback following a bearish reversal, and near-term weakness may drive it towards the 150 level, possibly targeting around 148.00.
Fxstreet Insights Team Market Observations
The FXStreet Insights Team shares selected market observations from experts, supplemented by additional insights from analysts. They focus on providing expert-driven insights, such as the strategic movements in currency pairs and the impact of geopolitical tensions on markets.
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We are seeing the Japanese Yen regain its classic safe-haven status amid rising global uncertainty. Last week’s breakdown in US-China trade negotiations in Geneva has sent a wave of risk aversion through the markets. As a result, the CBOE Volatility Index (VIX) has surged over 25% in the last five trading sessions, now hovering near 22.5.
For those trading derivatives, this points towards positioning for further USD/JPY weakness in the coming weeks. We believe purchasing put options on USD/JPY with strike prices around the 150.00 level offers a clear strategy with defined risk. This capitalizes on the momentum towards the 200-day moving average, which currently sits near 148.00.
Strategic Considerations For Investors
This environment is reminiscent of the market dynamics we saw during the 2018-2019 trade disputes, a period where the yen consistently strengthened by over 5% against the dollar during peak escalations. Supporting this trend, we’ve seen the US 10-year Treasury yield fall by 30 basis points this month to 3.85%, its lowest since July. This flight to safety in the bond market further supports the case for a stronger yen.
We should also consider the impact on Japanese equities, as a rapidly strengthening yen typically pressures the profits of Japan’s major exporters. Therefore, traders might consider hedging long yen positions by shorting Nikkei 225 futures or buying puts on related ETFs. This strategy can protect against a potential snap-back in risk appetite or any unforeseen domestic policy shifts in Japan.
