Goldman Sachs calls yen ideal recession hedge

The Japanese currency is now undervalued against the DOLLAR by 20-25%, according to Goldman Sachs.Yen looks like the cheapest safe-haven asset amid recession risks in the global economy Euro/Dollar EUR/USD$1,055 -0,76% Buy Banknotes of the Japanese Yen (JPY) - the currency of Japan

Analysts at Goldman Sachs consider the yen an ideal recession hedge   , BLOOMBERG writes, citing a company report. After the collapse of the yen to the lowest levels over the past 20 years, the currency looks undervalued, its rate against the dollar may rise by 15-20%, the bank believes.

On Wednesday, May 11, on the international Forex market, the yen was trading near the level of 130 yen per dollar as of 11:16 Moscow time. Compared to the previous day, the dollar against the yen fell by 0.3%.

On Monday, May 9, the yen fell to its lowest level in over 20 years. On this day, the dollar against the yen in the international Forex market rose by 0.6% to 131.4 yen per dollar. The Japanese currency began to rapidly depreciate three months ago: in March, the yen fell by more than 5%, and in April by more than 6%. In May, after two months of falling, the pace of sales of the yen slowed down a bit - since the beginning of the month, the yen has lost about 1%. In total, since the beginning of the year, the Japanese currency has fallen by 12% against the dollar - this is the worst indicator among the peer currencies of the G10 countries.

The massive yen sales seem to have come to an end. The Japanese currency is currently undervalued by 20-25% against the dollar, according to Goldman Sachs strategist Karen Reichgott Fishman. Against the backdrop of rising risk of a global recession, the yen looks like the cheapest safe-haven asset, the expert said. In addition, the dollar/yen pair has risen to levels that suggest higher chances for foreign exchange intervention by the Japanese authorities, she added.

In the event of a recession scenario, the dollar / yen currency pair may fall by 15-20% from current levels, says an expert at Goldman Sachs. "In the short term, in a highly volatile   global market, the yen is likely to be impacted by changes in US Treasury yields and commodity prices," Fishman said. At the same time, the combination of a cheap currency valuation, the non-trivial risk of foreign exchange interventions and, most importantly, the growing chances of a recession will pave the way for a depreciation of the dollar and a strengthening of the yen, the bank believes.

The yen has fallen against the dollar to a minimum since 2002 Currency , Japan , Fed

This year, the yen fell against the dollar to its lowest level since 2002 on the back of the Bank of Japan's loose monetary policy and expectations of an aggressive rate hike by the US Federal Reserve . Following the meeting in May, the US regulator raised the rate by 0.5 percentage points. — up to 0.75–1% per annum. During a press conference, Fed Chairman Jerome Powell said further rate hikes seem appropriate.

In Japan, the rate has remained negative since 2016, while other central banks are tightening their policies. The Japanese Central Bank set a negative interest rate at minus 0.1% in January 2016. At a meeting in April, the regulator, following a two-day meeting, decided to leave the main parameters of monetary policy unchanged. The Bank of Japan left the short-term interest rate on deposits of commercial banks with the Central Bank at minus 0.1% per annum, the target yield on ten-year government bonds at about zero. The last time Japan intervened to strengthen the yen was in June 1998, at the height of the currency crisis.

The US Federal Reserve raised the rate to 0.75-1% per annum. What Fed Investors Need to Know, Key Rate, usa

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A macroeconomic term for a significant decline in economic activity. The main indicator of a recession is the decline in GDP for two quarters in a row. Change in price over a certain period of time. Financial indicator in financial risk management. Characterizes the trend of price volatility - a sharp drop or rise leads to an increase in volatility. More