Why Japanese Yen appreciate even under negative rate?

[creditcard]

What seems to be is the more negative rate, the faster JPY appreciate

Does anybody ever thought of the reason behind it

Please do not tell me it is the safe-haven currency, it can not explain the downtrend from Feb to June at all

 

[Sig]

What seems to be is the more negative rate, the faster JPY appreciate

Does anybody ever thought of the reason behind it

Please do not tell me it is the safe-haven currency, it can not explain the downtrend from Feb to June at all

Lower interest rate currencies are expected appreciate wrt higher interest rate currencies per the no arbitrage forward curve, that's a basic fundamental concept of forex. Of course the spot price doesn't have to appreciate, but it should be expected to. Why would you expect the opposite?

 

[Maverick74]

Lower interest rate currencies are expected appreciate wrt higher interest rate currencies per the no arbitrage forward curve, that's a basic fundamental concept of forex. Of course the spot price doesn't have to appreciate, but it should be expected to. Why would you expect the opposite?

This is correct. I'll also add that one of the main drivers in FX is the forward expectation theory. While Japan has neg rates, in real terms their rates might be positive. When a country has deflation like they have had for decades, real rates can actually increase while nominal rates are negative. So given this concept, if the forward expectation is for deflation in Japan, then you would expect real rates to increase and buy the Yen. In the US we actually have inflation, small as it is, but it's "higher" then our nominal rates. This means you can actually earn a higher yield in Japan with their neg rates then you can in the US with our positive rates, therefore you should buy the Yen and sell the Dollar. Now this is a deep oversimplification just to explain the theory, but the key to understand is that it's "real" rates that drive currencies, not nominal rates.

 

[creditcard]

Lower interest rate currencies are expected appreciate wrt higher interest rate currencies per the no arbitrage forward curve, that's a basic fundamental concept of forex. Of course the spot price doesn't have to appreciate, but it should be expected to. Why would you expect the opposite?

I didn't. Expected the opposite, but you can't explain why Yen appreciate 20% in half year

 

[creditcard]

This is correct. I'll also add that one of the main drivers in FX is the forward expectation theory. While Japan has neg rates, in real terms their rates might be positive. When a country has deflation like they have had for decades, real rates can actually increase while nominal rates are negative. So given this concept, if the forward expectation is for deflation in Japan, then you would expect real rates to increase and buy the Yen. In the US we actually have inflation, small as it is, but it's "higher" then our nominal rates. This means you can actually earn a higher yield in Japan with their neg rates then you can in the US with our positive rates, therefore you should buy the Yen and sell the Dollar. Now this is a deep oversimplification just to explain the theory, but the key to understand is that it's "real" rates that drive currencies, not nominal rates.

Thank you for the discussion.
My understanding why Yen appreciate from 125 to 100 is the extreme high demanding of Yen
The negative rate cause the people in Japan begin the long term investment.
Just image if us 30 year mortgage rate become 0, what would you do? Buy another house maybe?
The high demanding of Yen cause the Yen appreciate that quick in a short time.
I am not sure if my explanation is correct or not, but if you agree, give me a "like". thank you

 

[Martinghoul]

What seems to be is the more negative rate, the faster JPY appreciate

Does anybody ever thought of the reason behind it

Please do not tell me it is the safe-haven currency, it can not explain the downtrend from Feb to June at all

Higher real rates, as mentioned; current account etc surplus; expectation of not much further that the BoJ can do... In fact, the causality between rates and the exchange rate might run the other way. This is also why you should also be careful about treating the interest rate parity-derived fwd as a forecast.

Recently, it sold off on the back of speculation of reasonably large fiscal stimulus (bigger than the expected 10trn yen) and the possibility that the BoJ will finance the deficits. The latter would be the "nucular solution", so to speak.

 

[eurusdzn]

What seems to be is the more negative rate, the faster JPY appreciate

Does anybody ever thought of the reason behind it

Please do not tell me it is the safe-haven currency, it can not explain the downtrend from Feb to June at all

I marked the huge moves in early Feb as primarily Fed induced and the market actually responding sharply to a Dudley speech. Appears it was an inflection point, in prices anyway, signalling a shift in US policy. Some assets like gold , silver, steel, metals took the signal as well.
How to assign "weight" or importance to these events by observing price real time within a short period of time aint so easy....for me anyway. Does this explain the Yen? No. Well to a degree it does.

 

[JackRab]

Safe haven.. there, I said it...

It's kinda like a reserve currency for Asian markets. Also, Japan is a net creditor... so they have relatively large international investments. So when markets tank, Japanese sell international assets and invest their money back in their own JGB's in Yen.

Why would you think it can't explain the yen rise? Yen bottomed in mid 2015... when Nikkei/China/Europe had their top in equities.

Look at 10 year chart... has safe haven written all over it. Bottom mid-end 2007, top end 2011...

 

[creditcard]

Safe haven.. there, I said it...

It's kinda like a reserve currency for Asian markets. Also, Japan is a net creditor... so they have relatively large international investments. So when markets tank, Japanese sell international assets and invest their money back in their own JGB's in Yen.

Why would you think it can't explain the yen rise? Yen bottomed in mid 2015... when Nikkei/China/Europe had their top in equities.

Look at 10 year chart... has safe haven written all over it. Bottom mid-end 2007, top end 2011...

From Feb to Jun 23 before Brexit, yen appreciate almost 10% as the market is perusing high risk asset

 

[JackRab]

From Feb to Jun 23 before Brexit, yen appreciate almost 10% as the market is perusing high risk asset

No, I see it as a flight into JGB's and out of foreign assets. If one wanted high risk assets, there's better ways than Yen.

PS, to peruse and high risk don't go well together in the same sentence