Volatility has been rocking global markets but the traditional safe-haven Japanese yen and currency-related ETF have not acted as a sanctuary for investors this time around.

Stocks, corporate bonds and commodities have all taken a hit this year, which would typically bode well for safe plays like the yen. However, the Invesco CurrencyShares Japanese Yen Trust (NYSEArca: FXY) slipped 0.4% over the past three months and was down 0.4% year-to-date, with the Japanese yen currency trading around JPY111.05 against the U.S. dollar. In comparison, the U.S. Dollar Index, which tracks the greenback’s move against a basket of major international currencies, gained 4.7% this year.

“The dollar-yen’s behavior has been peculiar and atypical” for much of this year, Sameer Goel, head of Asia macro strategy at Deutsche Bank, told the Wall Street Journal.

The Japanese yen typically enjoys a safe-haven status partly due to Japanese investors whom exhibit a huge demand for overseas assets as a result to ultra-low rates at home. These Japanese investors typically dump foreign holdings and bring money back home in times of duress, which would bolster demand for the yen and strengthen the currency.

Market watchers also point to the yen’s popularity as a carry trade where investors would borrow international assets with high returns. Consequently, if international markets turn volatile, investors would exit the trade and buy back the yen, which would in turn strengthen the currency.

Bank of Japan Monetary Policy

Furthermore, central banks may have also contributed to the weakness. The Federal Reserve has hiked short-term interest rates, which continued to support the U.S. dollar outlook. Meanwhile, the Bank of Japan has maintained its aggressively loose monetary policy. The divergence between the benchmark rates between the two central banks is now at its widest in over a decade.

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