Tags: currencies

Dollar Gains, Yen Falls on Weaker Safe Haven Lure

By    |   Tuesday, 03 Mar 2009 11:49 AM

In the past year, there's been a theme of "stocks down, yen up, dollar up" that has taken a big toll on stocks all around the world, especially Japanese exporters like Sony, Mazda, Toyota, Honda, and Panasonic, as well as the Dow component stocks such as GE, Citigroup, and Coca-Cola.

Last year, the yen was in first place in the currency race and the dollar was running behind in second. Now the strong yen appears to be running out of steam, and we have seen the currency significantly weaken over the past couple of weeks. This change has put the dollar out front and moved the yen into second place.

So, once again, the currency game is changing and it's helping the dollar vs. the yen currency pair (USD/JPY). In fact, it's been one of the few financial instruments in the entire world that has broken into a recent uptrend.

This will continue. Broad yen selling has continued in the past couple of weeks and the dollar benefit from it the most.

The yen and dollar both benefited in the past from so-called safe haven flows. Investors ran to these instruments because they were so beaten down and have held up well in the recessionary downdraft in the markets. In fact, they are some of the few things that have gone up this past year.

However, with the yen starting to fall, that "safe haven" is losing its luster quickly and the money flows that were in it are now starting to be diverted over to the dollar, thus helping out the USD/JPY pair the most.

This dynamic may also start to help Japanese exporters since they benefit from a weaker yen vs. the dollar. I think you will see the dollar stay strong relative to the yen in the months and year to come, which will finally bring a sigh of relief to the exporters at least on this front. This changing dynamic will end up helping these exporters.

The longer term stock investor might consider taking a new look into these Japanese stocks, especially the ones mentioned above that are traded in the United States also. In the coming months, they will start to benefit from the fall of the yen and it will start to be reflected in their stock prices once again.

For longer term currency investors, it would be good for them to take a fresh look at the USD/JPY pair. It's gone up so far, so fast that it is in dire need of a pullback. However, this could be a great place for the currency investor to look for returns in the near and longer term.

This also could be of great help to the stock investor if they bought into rising currency pairs like this because it will help to smooth out some of the downside volatility that they are taking in their stock portfolios right now.

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In the past year, there's been a theme of "stocks down, yen up, dollar up" that has taken a big toll on stocks all around the world, especially Japanese exporters like Sony, Mazda, Toyota, Honda, and Panasonic, as well as the Dow component stocks such as GE, Citigroup, and...
currencies
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2009-49-03
Tuesday, 03 Mar 2009 11:49 AM
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