Yen benefits from geopolitical instability
Investors are likely to accumulate yen as long as geopolitical tensions rise.
The Japanese currency strengthened broadly after South Korean President Yoon Suk Yeol declared martial law in an unexpected TV address. He stated his intent to rebuild a free and democratic country by rooting out pro-North Korean anti-state elements. Historically, the yen has been viewed as a haven in times of rising tensions on the Korean Peninsula.
While haven-related gains diminished after South Korea's parliament blocked the president’s declaration, and the finance minister promised to implement "all possible measures" to stabilize the financial markets if necessary, the yen will likely benefit from ongoing political unrest outside Japan.
Already under pressure from political instability in France and Germany, EUR/JPY fell back to Monday's low following Yoon’s announcement. Meanwhile, USD/JPY dropped to a new post-U.S. election low of 148.80, before recovering after U.S. data showed a rise in job openings and a decline in layoffs.
A favorable risk environment may temper haven-linked yen gains. But Japanese repatriation flows amid ongoing geopolitical uncertainty and higher long-term JGB yields are likely to support the Japanese currency and keep USD/JPY trading well below its 200-day moving average at 152.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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