This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Yen Is a Safe-Haven Currency

By Marc Chandler

NEW YORK (BBH FX Strategy) -- The Japanese economy is recovering from disruption of the earthquake/tsunami. Supply chains have mostly been re-established. The economic contraction is likely to end this quarter. However, the yen strength is not a function of the domestic economic performance. Yet market participants seem to intuitively understand the yen's strength more than the euro's resilience.

The yen is a safe haven, after all. That assertion seems so obvious, that why it is the case is rarely explored. It does not seem to be a function, as some suggest, of its trade surplus, but rather its position as a net international investment surplus country.

That means that Japanese investors own more foreign assets than foreign investors own of Japanese assets. In fact, Japan is the world's largest creditor. Last year, it was in surplus by over $3 trillion. China is the world's second largest creditor at about $2.2 trillion and Germany is in third place with a $1.2 trillion surplus. Next are Saudi Arabia and Switzerland, both of which are net international investment creditors at a little more than half the size of Germany.

Of the world's top five creditors, only the yen and Swiss franc are "clean" plays. Two are pegged or not convertible (China and Saudi Arabia) and one (Germany) is part of a unified currency that is composed of weaker alloys than the German steel.

The safe haven status of the Swiss franc and Japanese yen is risking their domestic economic and financial objectives. The Swiss National Bank has been more aggressive than the Bank of Japan. The BOJ intervened once (so far) and increased the size of its asset purchases. The SNB has steadily moved to increase its sight deposits, buy back bills, and engage in currency swaps.

The SNB took first-mover advantage and this may have helped spur the BOJ's record intervention the next day. However, the Japanese officials have limited their response in recent days to oral arguments (verbal intervention). However, the more successful Swiss officials are in breaking spirit of CHF bulls, the more pressure may mount on Japan and the yen.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs