Japanese assets and yen-related exchange traded fund are attracting greater safe-haven demand as volatility roils global markets.
Over the past month, the Invesco CurrencyShares Japanese Yen Trust (NYSEArca: FXY) increased 3.4% as the Japanese yen currency appreciated to JPY109.13 against the USD.
Fueling the strength in the Japanese currency, demand for Japanese government bonds has increased with yields on benchmark 10-year debt turning negative for the first time since September 2017 on the final trading day of 2018, the Wall Street Journal reported.
Yields on 10-year Japanese Government Bonds were at -0.01% Wednesday while yields on 5-year Japanese Government Bonds were at a lower -0.16%. In comparison, yields on benchmark 10-year Treasury notes were hovering around 2.66%.
The negative yield in Japanese debt reflects the heightened flight to safety as global investors are willing to park their cash in the relative safety of Japanese government bonds and also receive less at the end of the decade than they started with.
Gov. Haruhiko Kuroda previously stated “there is no problem if the yield falls into negative territory” so long as it falls within the Bank of Japan’s target range of zero, plus or minus 0.2 percentage point.
“There’s no need to worry if yields reflect the economy, prices and financial conditions at home and abroad,” Kuroda added.
Government bond prices have been rallying around the global, with yields falling in response, as the risk-off environment pushed investors out of risky assets and into safe havens.
The Japanese yen has traditionally acted as a safe haven play, strengthening in periods global financial distress. The safe-haven status may be partly due to Japan’s record debt levels, ongoing battle with low inflation and ultra-low interest rate levels. Furthermore, the country is know as a larger exporter and maintains a current account surplus.
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