A Dreaded Currency Is on the Rise

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The Japanese yen, everyone’s dreaded safe-haven, is on the rise.

Futures on the currency (@JY) rose 0.85 percent, their biggest daily gain since May. There’s also signs of a potential upward reversal after a breakout through the 50-day moving average. (Today’s move was anticipated on Monday’s Market Action.)

Japan traditionally has a lot of capital and low interest rates. When times are good, investors sell the yen to buy other risky assets. The opposite tends to happen when times are uncertain — like now.

This creates the potential for “yen squeezes” — something like a bank run. People who borrowed the currency to buy equities, commodities and emerging-market bonds, suddenly must cover those yen shorts. That means they have to unload those “risky assets” and flock back to the “safe-haven” currency.

The phenomenon has been less common in recent years but it was very obvious when global markets crashed between mid-2007 and early 2009.

A lot has changed since then, and we’re not making any predictions. We just wanted to  keep readers on watch for something that’s happened at previous times.

Japanese yen futures (@JY) with 50-day moving average and daily change.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.