The Japanese yen has recently come under the spotlight in global foreign exchange markets, sliding to 157.20 against the US dollar. Traditionally associated with high-risk appetite, the weakened yen might not exert the same influence this time. As the possibility of intervention by the Bank of Japan is discussed, analysts highlight that the country’s debt burden and fiscal expansion policies are sending mixed signals for risk assets.
Yen’s Dominance Faces Challenges
Historically, a weaker yen would typically result in an increased inclination towards risky assets like cryptocurrencies, as investors shift from low-interest yen loans to higher-yielding assets such as the US dollar. However, the current scenario is markedly different. Even though Japan’s interest rate remains at 0.5%, the nation’s public debt has soared to 240% of GDP. New economic stimulus policies by Japan’s Prime Minister, including a $135 billion stimulus package, seem to indicate more borrowing ahead.
Experts indicate that these developments are driving up interest rates for Japanese government bonds, which have hovered near zero for years. The ten-year bond yield has now reached 1.84%, the highest level since 2008. Economists foresee that Japan must either raise bond yields, risking a financial crisis, or maintain low rates, which could trigger a further decline in the yen’s value. This dilemma undermines the yen’s role as both a carry trade currency and a safe haven asset.
Swiss Franc Emerges as the New Safe Haven
As markets search for alternatives, attention has turned to the Swiss franc. According to Marc Chandler from Bannockburn Global Forex, the franc has a policy interest rate at zero, with a ten-year bond yield of only 0.09%, one of the lowest among developed countries. These attributes highlight the franc as the new carry trade currency.
For Bitcoin investors, the landscape is also changing. Previously, yen movements were a key indicator of risk appetite, but now analysts recommend tracking CHF pairs instead. The Swiss economy’s relatively stable financial structure is providing more accurate signals for understanding the general trend of risky assets.