Japanese Yen: No longer a safe-haven?

 Right now, Japan, who has the world’s second largest economy, is falling deeper into recession. And as for those who do forex trading, they may think that the currency is losing its safe haven status.

Looking back in 2007, the yen was the best performing major currency appreciating nearly 20 percent. And now, with the financial crisis in tow, it has slipped down steadily against the dollar. Japan's recession deepened in last month, highlighted by a record fall in industrial production. At the same time, data on household spending and retail sales stoked fears of deflation, while the unemployment picture brightened slightly.  In addition to that, the country has been suffering from domestic political woes.

So now that the US dollar continues to rally against yen and its major competitors, is it now the top safe-haven currency?

The Japanese yen had served as a safe haven unit this year as stock markets worldwide slide along with the dollar. But its appeal started to grow weak when Japan's economy had shrunk the most in 35 years during the October-December quarter of last year.

On the other hand, the US dollar strengthened on Wednesday as weak U.S. housing data and concerns about the global economy boosted the greenback's appeal as a safe haven. Geoffrey Yu, London-based currency strategist of UBS AG said in an interview with bloomberg.com that there are no alternatives to the dollar as of right now.

Based on the Dollar Index, which tracks the U.S. currency versus the euro, yen, pound, franc, Canadian dollar and Swedish krona, increased 8.7 percent this year, reaching 88.39 today, the highest level since April 2006.

Another strategist Michael Klawitter of Dresdner Kleinwort in Frankfurt believes that the demand for the US dollar will be boosted by demands from central banks. “The dollar’s safe-haven status plus its role as a reserve currency are the two factors that are making it currently more attractive than the euro and the yen,” he said. Klawitter also forecasts that the dollar will strengthen to 105 yen by year-end.

But others are not that convinced. Another popular option to receive the safe-haven status is the Swiss Franc. The currency has enjoyed the status of carry trade and safe haven for quite some time. Regardless of who gets the coveted safe-haven status, one thing is clear: we are all headed in a single direction, riding the rough wave of recession.   

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