The zero rates prevalent in Japan have made the Yen one of the most widely sought-after funding currencies in the world today. The cost of borrowing in the Yen currency is meager, and this makes it an attractive vehicle to fund the purchase of currency and later buy investments with a higher yield of interest rate and returns. It gained a lot of popularity as a funding currency for individual and institutional investors; there are some financial experts that argue that the Yen played a vital role in the Great Recession that took place during the years 2007 to 2008 across the globe.
Kavan Choksi Japan– an overview of the Japanese currency Yen
Kavan Choksi Japan is a business and finance expert known for his expertise in economics and investments. As per him, before the advent of the financial crisis, investors can have a big appetite for risks, and a lot of money that was provided by selling the Yen currency flowed into some hazardous assets like collateralized debts and subprime mortgage-backed securities.
When the real estate bubble burst, all of the above assets crashed severely in value, and the trades that were funded by the Yen were unwound fast, bringing a reduction in the liquidity of the US dollars and some other global currencies. The Central Banks across the globe also reacted to this quantitative easing policy, and they had to pour new money into the economy.
A measurement of the risk tolerance in the trading markets
Following Japan, many nations followed suit, and they dropped their interest rates as well to zero. Investments that were funded with currencies having a low yield had the chance to witness a revival. However, financial experts state that if this is the case done massively, there is a chance that the dangers of 2008 can return once more.
Chances of uncertainty in the market push the value of the Yen higher
Yen is a popular currency for funding, and if there is market stress or events of uncertainty in Asia, they drive the value of the Yen higher in the economy. Contrary to other currencies, the value of the Yen does not drop in the events of market turmoil. For example, positive relations between China and the USA tend to push the value of the Yen higher, and it does not drop. However, in case the trade relationships between the two nations become sour, the USD/JPY currency pairing’s value will fall.
Kavan Choksi Japan states that in the above lines, investors in the market are generally optimistic. The share market sees many investments, and compared to the other currencies across the globe, the value of the Yen tends to become weaker.
If there is a crash in the market, you will find that the Yen currency will rise in value. In short, you can bank on it when the market is under stress, and this is why it has been named the safe haven currency of the world. You can always rely on the Yen as it is a measure of the risk tolerance in the market for investors today.
