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Apr 18 - 12:55 AM

BNPP: Is the JPY Still a Safe-Haven Currency?

By eFXdata  —  Apr 17 - 04:30 PM


BNP Paribas reassesses the Japanese Yen's (JPY) status as a safe-haven currency in light of recent shifts in global geopolitical and economic conditions. Historically, the JPY would strengthen during geopolitical crises, but recent trends since 2018 suggest a pattern of weakening instead. BNPP explores the implications of these changes on Japan's economy and the Bank of Japan's (BoJ) monetary policy.

Key Points:

  • Changing Safe-Haven Status: Unlike past decades, the JPY has tended to weaken in response to geopolitical risks since 2018. This shift reduces the currency's role as a global safe-haven asset, particularly under current global financial conditions.

  • Impact of Fed Rate Decisions and Trade Deficits: If the Federal Reserve delays or reduces expected rate cuts, coupled with concerns over Japan's growing trade deficit due to rising international commodity prices, the JPY could face increased downward pressure. This scenario is further complicated by the dual burden of a weaker currency and higher import costs, which could exacerbate inflationary pressures within Japan.

  • BoJ's Monetary Policy Challenges: The potential for heightened inflation expectations might prompt the BoJ to reconsider its pace of interest rate hikes. Initially, the BoJ may view higher commodity prices as a dampener on spending, but persistent inflation pressures could necessitate a quicker and more aggressive rate hike strategy.

  • Risk Management and Rate Hikes: In response to further weakening of the JPY, the BoJ might accelerate its rate hikes as a precautionary measure. If inflationary pressures remain high, the BoJ could target the lower end of its estimated 'neutral' rate range through consistent quarterly increases.

  • Monetary Policy Outlook: Despite the complex backdrop of geopolitical tensions and the evolving role of the JPY as a safe haven, BNPP maintains a base case where the BoJ will continue to hike rates every six months, with the next increase projected for September.


As the traditional safe-haven status of the JPY comes under scrutiny, BNPP highlights significant challenges for Japan's monetary policy amidst evolving global economic conditions. The combination of a weakening yen and rising commodity prices poses inflationary risks that may force the BoJ to adjust its approach to interest rate hikes more frequently than anticipated. Investors and policymakers must monitor these developments closely, as they could have profound implications for Japan's economic stability and the valuation of its currency.

BNP Paribas Research/Market Commentary


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