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.