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Market fundamentals - Why is the yen a safe-haven currency

First of all, let me expla ForexRapidRebate my underst rebateforexbrokering of the concept of safe-haven rebateforexfee In simple terms, a safe-haven currency Forex Rapid Rebate a currency that is bidup by the rebateforex when a risk event occurs I think this is also a definition generally agreed by the majority of foreign exchange traders, namely the so-called safehavencurrency In the framework of this definition, a safe-haven currency is a short-term concept, is in a specific period of time ( The market turmoil period) showing certain characteristics (appreciation) of one or more currencies traders in the risk event when buying safe-haven currency in order to avoid risk in the short term, rather than these currencies really in the long term with safe-haven, value preservation, stable characteristics Then the question arises, what is the risk of avoiding, why only certain currencies (such as the yen) can avoid in the short term risk? The problem is clear, you can understand which currencies will become safe-haven currencies Foreign exchange market participants are generally considered to have several categories: central banks, multinational corporations, investment institutions and retail investors different participants in the foreign exchange market transactions for different purposes foreign exchange market short-term movements, especially during periods of market turmoil, the role of the decision is to professional investment institutions If you agree with this, we look at the foreign exchange The most important strategy of investment institutions, carrytrade (carrytrade) can be said that carrytrade is the most important strategy in the foreign exchange market in the foreign exchange market, a significant portion of the funds allocated in carrytrade the vast majority of foreign exchange funds, there will be a carry strategy carrytrade for the foreign exchange market, is equivalent to the stock market buyandholdWhy? Because carry is a stable cash flow, just like stock dividends, not to mention, 08 years ago, the high- cashback forex currency is still stable appreciation, that is equivalent to not only take the dividend, the stock price also rose carrytrade simply put is to borrow (sell) low-interest currency (financing currency), buy high-interest currency, earn carry and the risk is the spot exchange rate changes The ultimate benefit of carrytrade is the spread - the depreciation of the high-interest currency relative to the financing currency When a risk event occurs, what will the fund manager of the carrytrade do? When the risk event occurs, the market uncertainty is greatly increased, we do not know how the market will go, then the wisest way is to close the position first carry spread is very small, usually a few percent, and in the market turmoil, once the market moves in an unfavorable direction, carry this spread is instantly offset by the depreciation of the high-interest currency The next is interesting We all know that there is a large allocation of funds on carrytrade, which means that we all know what action others will take once the market is volatile (buy the financing currency and sell the high yield currency) Theoretically, because the currencies used in different carry portfolios are different, the spreads of each carry portfolio are also different When the fund with the smallest spread closes its position, the financing currency appreciates and the high yield currency depreciates This worsens the return-risk ratio of other hedging strategies, and then more and more funds close their positions, the financing currency further appreciates, the high-interest currency further depreciates, forming a vicious circle, until the vast majority of hedging strategies are closed Then the optimal strategy for everyone is to get their hands on the spread is how much, once the market is expected to fluctuate the first time to close the position, the earlier the position is closed, the better the result. The more the result is better here it is clear that the risk of safe-haven currency is when the market volatility, carrytrade close position when the financing currency appreciation, high interest rate currency devaluation risk Why some currencies have become safe-haven currency? Because they are the financing currency rather than the hedge currency itself has the function of hedging, rather than say they are the financing currency of the carrytrade, and give them the properties of hedging Now to answer why the yen has become a hedge currency is much simpler because the yens interest rate is low carrytrades core is to sell low interest rate currency, buy high interest rate currency theoretically any low interest rate Currency can become a financing currency, in fact, many funds are doing so and the yen is relatively special place is that the yen liquidity is very good, after all, is one of the three major currencies, followed by a low interest rate stability as to why the yen interest rates are low, that can be written from various angles such as the fundamentals of a large book, that is, many answers to say, but this actually does not answer the core of the problem in 08 years Before, only Japans interest rates have been stable to low due to the size of the hedging transactions, a lot of high-interest currencies, and low-interest currencies are rare, so to become a financing currency also needs to have good liquidity, for a long time, the yen is the only currency to meet these requirements This is why many people are under the impression that when it comes to safe-haven currencies think of the yen and of course the dollar, the dollars safe-haven function is relatively more But in recent years, the worlds major central banks have been implementing negative interest rates, there are many currencies are close to or even lower than the yen, and these currencies have indeed become the so-called safe-haven currencies such as the Swiss franc and the euro, especially the Swiss franc, before the SNB pegged the Swiss franc at 1.2 against the euro, which is simply more perfect than the yen financing currency, do not worry about appreciation and negative interest rates, so 08 years After mentioning the safe-haven currency, there will certainly be the Swiss franc euro is the most recent year to become a financing currency of the euro zone negative interest rates, the euro itself and depreciation is expected, coupled with the liquidity of the euro although the euro against the dollar depreciated a lot, but if you pay attention to the market, it is clear to see, in some negative news out, the euro relative to many other currencies have jumped up at the same time the dollar because of extremely low interest rates, and become more than 08 The final conclusion is that as long as the interest rate of a currency is low enough and liquid enough, it can become the financing currency for interest rate trading, which is the so-called safe-haven currency, the yen just meets these two conditions and why the interest rate of a country is low, this is determined by many factors, is a very complex economic and financial issues and for foreign exchange trading, the intrinsic reason is not so important. This intrinsic reason is not so important, it is important to observe the trend of each currency in the event of a risk event, so as to find the prevailing financing currency in the market Brainstorming, if the interest rate of the yen tomorrow all of a sudden becomes 3%, the yen will soon not be a safe-haven currency and Japan is still the same Japan, but the yen is no longer the yen

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