Investment by JP Morgan and Deutsche Bank
Yen Value Rising Against Dollar
Settled at 131 Yen After SVB Bankruptcy
Market Expects Exchange Rate to Fall to 120 Yen Range
As the bankruptcy of Silicon Valley Bank (SVB) in the United States expands volatility in the global financial markets, Wall Street investors are once again turning their attention to the safe-haven asset, the Japanese yen. There are forecasts that the yen, which fell to its lowest value in 32 years last year, will experience an upward trend by the end of the year.
On the 29th, Bloomberg reported that the financial system crisis triggered recently by SVB has struck the world, leading asset management subsidiaries such as JP Morgan and Deutsche Bank’s DWS Group to refocus on yen investments. American asset management firms like State Street Global Advisors (SSGA) are also investing conservatively by including yen in their fund portfolios.
In the foreign exchange market, the 3-month dollar-yen "risk reversal," which predicts the directional movement of future exchange rates, shifted strongly toward yen appreciation for the first time since 2020. Demand for call options (purchase rights) on the yen significantly outpaced put options (sale rights), increasing call option volatility, which indicates a growing number of investors betting on the yen’s value rising.
The yen’s value against the dollar rose due to the combination of the Federal Reserve’s (Fed) reduced pace of interest rate hikes and a preference for safe-haven assets amid the global banking crisis. The yen-dollar exchange rate dropped from the 137 yen level earlier this month before the SVB bankruptcy to the 131 yen level as of this date. Yusuke Miyairi, currency strategist at Nomura International, stated, "The recent financial instability hitting the US and Europe has increased the possibility of an economic slowdown," adding, "It seems easier to profit by investing in the relatively safe yen."
As of this month, the yen’s value rose 3.8% against the dollar, surpassing the Swiss franc’s 2.8% increase to record the highest currency value gain.
The market predicts that as the yen’s value rises, the yen-dollar exchange rate, currently in the 130 yen range, will fall to the 120 yen range. Bjorn Yesi, Chief Investment Officer (CIO) of DWS Group, forecasted, "The yen’s value is expected to rise to 125 yen per dollar within the next 12 months." Morgan Stanley also anticipates the yen’s value to increase by 9% against the dollar, reaching 120 yen.
Moreover, the Bank of Japan (BOJ) potentially shifting its large-scale monetary easing policy, maintained for the past decade, to a tightening stance in line with the appointment of a new governor is also fueling the yen’s appreciation.
Bloomberg explained, "Investors are speculating that the BOJ, which has maintained zero interest rates for years, will normalize its monetary policy," and the market is strongly betting on a decline in the yen exchange rate.
However, some predict that the yen’s value will rise gradually rather than rapidly. Yuki Fukaya, a market risk expert, told Nihon Keizai Shimbun, "Unless financial instability becomes extreme, the exchange rate will fall between 120 and 125 yen within the year," and explained, "We foresee a so-called ‘loose yen appreciation’ scenario where the yen’s value slowly rises during the US economic recession."
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