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USD/JPY on a downtrend as safe haven strengthens

USD/JPY on a downtrend as safe haven strengthens

Volatility lies ahead as we head into the election season. One of the places investors and traders like to park their money is the iconic Safe Haven, the Japanese Yen.

USD/JPY on a downtrend

After the initial spike in the US dollar strength, the Japanese Yen strengthened against the US dollar by around 5.2%. Not as drastic as commodity pairs such as the Australian Dollar against the US dollar; however, the trend of the strengthening of the Yen has been consistent and strong.

Many banks see a strengthening in the Yen against the US dollar as we enter volatile times ahead. Bank of America's Global FX Team stated that they predict to see the USD/JPY pair at 103, citing the "reintroduction of COVID-19 measures in most countries, particularly in Europe". They further state that the Yen has gotten stronger during the recent periods of weakness in the stock markets.

US weakening providing tailwinds for the Yen

However, it's not just the Yen that is in the picture. Weakness in the US dollar may provide tailwinds for the Yen. Many large institutions such as Goldman, UBS, and Invesco predicting a weaker dollar, citing Biden extending his lead over President Donald Trump.

Japan has not been in the news much regarding their Coronavirus response. Similarly to Australia, they went with no lockdown opting for social distancing and face masks, trusting citizens to continue their life with the Coronavirus in mind. However, just like Australia, the method backfired. They experienced their second wave, which was larger than the first. They have since tamed the Virus, however, at a significant cost. The political risk of a sudden change in Prime Minister saw the Yen jump.

With elections coming up ahead, there is a high chance we see the Yen rally against the US dollar in the future.