The consensus is that the yen is too strong and that it will soon weaken significantly. After all, what with the 0% interest rates, the weak trade environment, the huge sovereign debt and the ongoing political paralysis who would want to keep owning it if they didn’t have to?
It makes sense as an argument. But as Robin Aspinall of Halkin points out, it has made sense for many years now. And the yen hasn’t weakened yet.
Most analysts put it down the unwinding of short positions in the currency and to the repatriation of funds to the country to pay for reconstruction. But there isn’t much evidence that either of these – even if they exist (as I say here, the repatriation part may be no more than an urban myth ) – are any more than transitory.
So what’s the real reason? That in the world of currencies everything is relative. While we wait for the renminbi to emerge as a genuine world currency, the only competitors to the yen are the dollar and the euro. Both represent economies in the middle of disasters, which in the case of the US at least are “chronic and incurable.”
The Japanese economy isn’t exactly a model of perfection but at least all of its major problems are recognised and the country has “proved itself capable of tackling its economic calamity.” Given that, which currency would you rather hold? That’s why the yen looks so strong.