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Yen: snail leaves its shell

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The Japanese currency has long played the role of a defensive asset, but now its position has been shaken, experts said. The yen is like a snail, which is slow and cautious, but is not afraid to leave a cozy "house" of its defensive status.

Experts recorded the unusual dynamics of the USD/JPY pair at the beginning of the week. The paradox of the yen is that it temporarily became a risky asset, suddenly losing safe-haven status. Recall that the Japanese means of payment has long been perceived as a haven currency, but the Chinese coronavirus (COVID-19) has confused all the cards. It was the spread of COVID-19 in Asia, primarily in Japan, which threatened the country's economy that provoked the flight of this haven, that is, a sharp collapse of the yen against the US dollar.

Many experts agree that the greenback knocked out the yen at the end of last week. The yen fell 2% against the dollar last Friday, February 21. The bandwagon of the Japanese currency was framed by weak data on the Japanese economy, as well as the growing fears associated with the spread of coronavirus. Recall that in December 2019, the volume of orders in the Japanese machine-building industry decreased by 3.5% year-on-year, and in January 2020, the trade balance fell.

As a result, the USD/JPY pair sharply rose from 109.90 yen to 112.20 yen a dollar. Experts recorded a global downward trend of the pair, formed in December 2018. According to experts, the peak value of the USD/JPY pair is the significant resistance level of 112.40, noted in April 2019. It was from this point that a large-scale fall in pair began, analysts said.

The USD/JPY pair met at 110.67 on Tuesday morning, February 25, but could not stay in this position for long.

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Subsequently, the pair fell to 110.59–110.60, becoming a hostage to the downward trend. It became very difficult for the USD/JPY pair to leave this range in which it was located.

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The currency strategists of a number of large banks are confident that the pair's downward trend will continue in the short term, and the range of 110.70–111.00 may become a support level. According to the forecast of leading analysts at Societe Generale SA, by the end of this year the Japanese currency is expected to decline to 100 yen against the dollar from the previous 98 yen.

Experts are at a loss to answer for how long the yen is ready to part with the status of a safe-haven asset, but they are confident that in the medium term everything will return to normal. The Japanese currency will again become a safe asset attractive to investors, which will slowly but surely save their funds. The snail will return to its shell, guaranteeing it protection from market storms, analysts said.

The material has been provided by InstaForex Company - www.instaforex.com