Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to strengthen in the Asian trading session resulting in USD/JPY breaking below the 115.00-level for the first time since late in 2014 just after the BoJ expanded QQE. Key Quotes “An intensification of risk aversion amongst global investors is boosting safe haven demand for the yen. The recent performance of the yen highlights that it remains the safe haven currency of choice despite the BoJ’s decision to implement a negative interest rate alongside their QQE programme. The BoJ’s decision to implement a negative rate has contributed to the unfavourable outcome of lifting the volatility of the yen in the near-term. The Japanese equity market has also fallen back towards its recent lows from January after the relief after the BoJ’s policy announcement proved short-lived. The policy announcement has had more initial success at lowering yields in Japan. Government bond yields in Japan have now fallen into negative territory as far out as ten years in maturity boosted as well by safe haven demand in the near-term. The BoJ is likely to be uncomfortable over the initial financial market reaction. The unwanted strengthening of the yen and renewed weakness in the Japanese equity market is increasing downside risks to the BoJ’s economic outlook. As a result, it is also increasing the likelihood that the BoJ will soon ease monetary policy further again. The BoJ clearly signalled at their last policy meeting that they are prepared to lower the interest rate further into negative territory. However, in the current negative external market environment the BoJ may continue to find it difficult to weaken the yen even if yields become more negative. The risk of even more negative interest rates is likely contributing as well to weakness in domestic financial equities. Yen strength is proving uncomfortable as well for the Japanese government. The Vice Finance Minister for International Affairs Masatsugu Asakawa stated overnight that the yen’s movement has been “rough” lately and that they are “closely watching” the currency market. The comments were echoed by Finance Minister Aso. The verbal intervention is an attempt to dampen yen strength and volatility in the near-term. However, the bias still remains in favour of further yen strength in the near-term. The yen remains significantly undervalued according to our long-term valuation models leaving plenty of scope for further yen strength if global financial market conditions continue to deteriorate.” For more information, read our latest forex news.