Why Aren't Investors Fleeing to the Yen | Presented by CME Group

Summary

• The Japanese yen's traditional safe-haven status is being questioned as it weakens during market volatility instead of strengthening.
• Policy divergence is the core driver: the Bank of Japan has been slow to tighten monetary policy while other major economies aggressively fought inflation.
• This has kept Japanese yields structurally low, especially relative to the United States, making the yen a funding currency for carry trades.
• Investors borrow yen at low rates, sell it for higher-yielding currencies, and deploy capital elsewhere, creating steady downward pressure on the yen.
• The yen has depreciated approximately 50% against the U.S. dollar since 2012, with an acceleration from 2020, driven by rate differentials and capital flows.
• The yen's behavior is now more influenced by yield spreads and capital movements than by risk aversion or fear-driven flight to safety.
• Until yield differentials narrow or Bank of Japan policy shifts, the yen may not act as a reliable safe-haven asset.
• This shift forces investors to reconsider allocation strategies that previously assumed the yen would strengthen during stress periods.