“The Japanese yen will likely be an excellent — and possibly one of the best — candidate to cover from commerce tensions and a U.S. recession, for an entire host of acquainted causes,” stated Ebrahim Rahbari, head of charges technique at Absolute Technique Analysis.
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Buyers are flocking to protected haven property after U.S. President Donald Trump introduced a swathe of reciprocal tariffs final week — and a few are wanting on the Japanese yen, bonds, in addition to just a few different “unique” property.
“The Japanese yen will likely be an excellent — and possibly one of the best — candidate to cover from commerce tensions and a U.S. recession, for an entire host of acquainted causes,” stated Ebrahim Rahbari, head of charges technique at Absolute Technique Analysis.
“It’s low-cost, the possible decline in U.S. rates of interest will slim the speed differentials to the yen, and regardless that Japan is a distinguished exporter, its total reliance on commerce is decrease now, notably as fiscal coverage has been free,” he informed CNBC through e mail.
The yen has strengthened round 3% in opposition to the dollar since April 2, based on knowledge from LSEG. Rahbari added that the Swiss franc is one other “apparent candidate” as an funding hedge. The franc has likewise appreciated over 3% to 0.8522 in opposition to the U.S. greenback. These strikes come as different currencies all over the world weaken.
One other strategist echoed the view that each the yen and the Swiss franc are among the many finest choices for cushioning the affect of Trump’s tariffs.
“Each the Japanese yen and Swiss franc are good currencies to assist mitigate the visceral response of the market to tariffs,” stated Matt Orton, head of advisory options and market technique at Raymond James Funding Administration.
However Orton expects the Swiss franc to behave as a greater hedge than the yen, given the uncertainty surrounding the trail of Financial institution of Japan’s charge hikes.
The yen often outperforms in occasions of worldwide recessions or disaster, stated Jeff Ng, head of Asia macro technique at Sumitomo Mitsui Banking Company. “Even when the world avoids a tough touchdown, [the yen] might also do nicely because the BOJ will presumably hike additional in opposition to a wave of central financial institution easing,” he stated.
Nevertheless, he warned that Japan’s economic system can also be going through headwinds from Trump tariffs, notably from tariffs on cars and parts. And a slowing economic system would imply that the BOJ will likely be extra inclined to maintain charges low, holding the yen weak.
A extra attention-grabbing query is whether or not there could possibly be extra “unique” hedges other than the basic protected havens, stated Rahbari, who named the Brazilian actual as an possibility.
“The thought being that it’s low-cost, has excessive carry and that it’s comparatively much less uncovered to international commerce,” stated Rahbari, including that the actual has been one of many main outperformers in currencies this yr.
Bonds and gold?
Buyers have additionally been piling onto money, in addition to low-risk fastened revenue choices akin to Treasurys and bonds.
Bond yields have additionally been declining, reflecting a rising demand for bonds, with the benchmark 10-year U.S. Treasury bond yield falling 6% from April 2 to a low of three.873% on Monday.
Japan’s 10-year authorities bond yield plunged to a low of 1.05% on Monday, a 28.52% drop from April 2’s shut of 1.469%. That is additionally the bottom the 10-year JGB yield has been since December 2024.
Danger-off positioning has been dominating markets as members promote shares in favor of Treasurys, gold bars, dollar futures, crude oil barrels, volatility name choices, fairness index put derivatives, and forecast contracts, stated José Torres, senior economist at Interactive Brokers.
Gold costs rose to a document excessive within the speedy aftermath of the reciprocal tariff announcement. Although they’ve fallen a bit since then, costs of the protected haven darling stay at elevated ranges. Market watchers anticipate it can have extra room to run as international markets stay on edge.
“Gold stays boosted by escalating commerce uncertainties, heightened geopolitical tensions, a weaker U.S. greenback, rising central financial institution purchases, and rising dangers of recession,” stated BMI analysts.
SMBC’s Ng stated gold is often a protected haven throughout monetary disaster, noting that demand from personal households and governments stays resilient. However, he says, “costs are stretched on the upside.”
The explanations behind gold’s stellar begin to 2025 are solely stronger now that Trump has introduced his tariffs, stated Adrian Ash, director of analysis at BullionVault.
“Weaker commerce, larger enter prices and shrinking margins are badly hurting the inventory market, whereas geopolitical distrust is deepening. Such a depressing outlook for financial development presents the proper backdrop for additional features in gold,” he stated.
U.S. equities capped off a brutal week for traders final Friday, down 9.08%, based on knowledge from FactSet, as Trump’s strikes stoke extra calls of a worldwide financial slowdown. JPMorgan, for example, raised the odds for a U.S. and global recession to 60% by the top of the yr, up from 40% beforehand.
“There isn’t any bid for equities proper now,” stated Raymond James Funding Administration’s Orton.
