Jan. 12 – The Japanese yen is set to return as investors’ top choice for trades after an increase in U.S. bond yields and the recovery of the dollar against the yen.
The yen option allows a low-yielding currency to buy assets in higher-yielding currencies to maximize returns. “I think the yen will reclaim its status as the funding currency of choice in 2010. Even if the Federal Reserve raises rates by 25-50 basis points, that would mean U.S. rates will still be markedly above Japan’s,” said Richard Franulovich, senior currency strategist at Westpac told Reuters.
The yen has an almost zero percent interest rate and has been the funding currency of choice for several years prior to when the benchmark cost of three-month interbank dollar funds plummeted against the yen last year.
Despite a weaker U.S. economy, optimism is still palpable and there are expectations that conditions will improve. Japan on the other hand fears deflation and is likely to maintain Japanese interest rates at extremely low levels to cope.
