Yen emerges as a clear currency-market winner

President Donald Trump is touting the virtues of a trade war. In the $5.1 trillion-a-day currency market, the yen has emerged as a clear winner from the escalating rhetoric.
 

The latest move pushes forward the administration’s trade agenda, after it took similar actions on other goods this year and jawboned the dollar lower. The potential hit to US and global growth from protectionism has sent stocks lower, initially drove bonds higher and buoyed the yen. Investors and strategists are wagering there’s more of the same to come.

The unfolding events remind Chris Turner, global head of currency strategy at ING Groep NV, of the early 1990s when the US took protectionist steps against Japan.

“We might now have people dusting off their forecasts for the dollar-yen to reach 80 in 2019,” said Turner, whose forecast stands at 100 for now. “Investors may be front-running potential shifts in portfolio capital into 2019 and be saying today it’s worth increasing hedge ratios, and the best currency to do that is long yen.”

The yen surged to a then-record high in 1995 of 79.75 per dollar. The currency has long been seen as a haven during times of turmoil in part because the nation’s high savings rate has traditionally allowed Japan to be less dependent on outside sources of funding during trade and political disputes.

The tariffs could reduce US growth by as much as 0.2 percentage point this year, and further risk lies in how trading partners respond, Barclays economists said.
 

The greenback slid Friday as traders sought refuge in the yen, Swiss franc and euro. Trade-sensitive currencies, such as the Canadian dollar, also fell.
 

The yen also got a boost Friday after Bank of Japan Governor Haruhiko Kuroda said the central bank will start thinking about how to exit its unprecedented easing around fiscal year 2019. The exchange rate is now 105.48, with the yen appreciating 1.3 per cent since the end of last week.

The Bloomberg Dollar Spot Index is down about 2.5 per cent this year, adding to its 9 per cent plunge in 2017.