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Traditional thinking in forex would suggest that if the yen is getting weaker, it’s a sign that the markets are interested in taking on more risk.
The idea is that the yen and risk are inversely correlated. But, what happens when the market is risk-averse, and the yen weakens?
This has been the case through the middle of February and has some people scratching their heads.
Now, of course, the reputation of a currency doesn’t turn on a dime. So, we can say that Japan will still be seen as a safe haven in the medium to long term. But that doesn’t mean we can’t have short term or a certain set of circumstances that can distort the usual market dynamics.
And, if that distortion persists long enough, it can be the new normal.
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