Foreign Exchange Sky Eye APP News: Against the background of the domestic economic downturn, the number of new coronavirus infection cases in Japan has continued to rise, and related uneasiness has intensified, putting pressure on the safe haven status of the yen.
The yen tumbled to a nine-month low against the dollar on Wednesday, with crosses also suffering heavy selling. Traders and analysts said this showed that large investment portfolios were fleeing the yen market.
This runs counter to long-held assumptions that Japan's funds would repatriate money during a real global crisis, pushing up the yen.
"We can see a change in gold prices on any underlying concerns about the virus... but we can't see the same movement in the yen," said Shafali Sachdev, head of Asia FX at BNP Paribas Wealth Management in Singapore.
"Japan's proximity to and reliance on China does not help the yen's safe-haven status in the current situation," she said, adding that risks to Japan from the virus outbreak and recent weak economic data had heightened concerns.
The yen traded at 111.36 against the dollar JPY=EBS on Thursday, after falling 1.3% on Wednesday, its biggest one-day drop in five months.
The yen also fell sharply against the euro, pound and Australian dollar. Meanwhile, gold prices, which typically move in lockstep with the yen, rose 0.6%.
Analysts were quick to link the yen's moves to large portfolio shedding of yen assets - most likely Japan's massive government pension funds - driven by concerns surrounding Japan's economy and the spread of the epidemic.
The new crown epidemic broke out in China, but spread rapidly. The Diamond Princess cruise ship The epidemic caused the number of cases in Japan to exceed half of all confirmed cases outside China.
Some people are already worried that the epidemic will cast a shadow on the Tokyo Olympics. The Olympic Games will be held at the end of July, which is expected to boost Japan's economy and national morale.
But if the epidemic spreads among the Japanese people, the impact will almost certainly be enough to drag the world's third-largest economy into recession. Japan's economy unexpectedly shrank sharply in the fourth quarter.
Japanese investors bought a net of about 3 trillion yen ($27 billion) in foreign bonds in the first two weeks of February, also appearing to underline their lack of confidence in domestic investment.
Falling global interest rates have weakened the yen's appeal as a "financing currency."
This further weakens the yen's safe-haven function, because during times of economic distress, investors reverse transactions that previously borrowed financing currencies for investment, which is considered another factor supporting the yen's exchange rate.
"If people no longer think of the yen as a funding currency, there may be no reason to think of the yen as a safe-haven asset," said Brent Donnelly, spot currency trader at HSBC .
"The price action over the past year or two points to the issue," he said, pointing to the yen's muted reaction in recent months to tensions on the Korean Peninsula, the trade war and a near-collision between the United States and Iran in the Middle East in January.
"Overnight price action reinforced the view that the yen has entered a new era."
