I geopolitics of Japan
Let's talk about a common sense first. As we all know, a country's economy tends to decline due to political, war, market fluctuations and other factors, and capital flight leads to currency depreciation. If holding the assets of these countries is obviously unfavorable, Japan is an island country, which is not easily influenced by these factors in geopolitics and can avoid the risk of depreciation to the maximum extent. Therefore, foreign exchange traders hold yen to avoid risks.
I. Economy
As a developed country, Japan has a reasonable economic structure, a mature economy, a complete financial system and strong economic strength, which provides a foundation for the stability of the yen. At present, the Japanese yen is the third largest currency in the world, and it is freely convertible in foreign exchange transactions, which is the condition for it to become a safe haven currency.
Second, the yen is a low-interest currency, which is the most direct reason why the yen has become a safe-haven currency.
Let me tell you a common sense first. If a country's economy fails, it needs to cut interest rates to stimulate the economy. If the interest rate is cut, the country's currency will flee and depreciate, making it uneconomical to hold the country's currency.
Because Japan's interest rate has been low for a long time, it can't come down. In times of crisis, other countries' currencies may depreciate by cutting interest rates. The yen is already the bottom interest rate policy, and it is unlikely to cut interest rates further. Therefore, the yen has a more important role in maintaining and increasing value in the face of the crisis.
Third, international arbitrage trading.
There are many carry trades in the world. Due to Japan's long-term low-interest policy, they borrowed yen currency at a lower cost and bought other high-interest currencies such as pound sterling to earn interest income. As long as the exchange rate of the Japanese yen against the British pound remains unchanged, in theory, stable spread income can be earned. After the funds expire, you can sell high-interest currency for Japanese yen, and you can get income by subtracting the financing cost of Japanese yen. However, if there are uncontrollable economic, political and other risk factors, the high-interest currency has the risk of depreciation. At this time, in order to avoid losses, these speculators will often take the initiative or be forced to close arbitrage transactions, sell high-interest currencies, and repay yen loans, resulting in an increase in the yen exchange rate. For example, Britain's withdrawal from the EU led to the appreciation of the yen, which is the principle.
The above four reasons all point to one result, that is, the appreciation property of the yen. Smart traders tend to pay close attention to the economic and political situation of various countries and look for profit opportunities in trading their own currencies and Japanese yen from the crisis. If traders can predict the existence of arbitrage risk, they can earn their own profits by buying yen in advance.
I think every foreign exchange trader should deeply understand the safe-haven nature of the yen and find more profit opportunities as soon as possible. The economic and monetary fundamentals of various countries are an important guide to analyze the market. In-/Assa foreign exchange community-it is not enough to rely solely on technical analysis, and it is more comprehensive to learn from technical aspects and fundamentals.