Is the yen still a safe haven?

The Japanese yen has long been considered the best currency in which to invest when the world is facing danger or financial markets are in turmoil.

On more than a dozen occasions since the mid-1990s, it has soared in response to shocks, including the global financial crisis in 2008 and Britain’s vote to leave the European Union in 2016. The yen even rose in value following the Great Eastern Japanese Earthquake in 2011.

The yen is currently strong, despite the risk of a conflict involving North Korea. This puzzles Leo Lewis of the Financial Times, who asked this week why the yen is still regarded a safe haven, even though a war with North Korea could cost millions of Japanese lives and devastate its economy.

Fortunately, the risk of an all-out war is not perceived as a high – at least not for the time being. Also, as Leo Lewis points out, some foreign investors are hedging their bets and have moved their money into other safe havens, such as the Swiss Franc.

Japan and Switzerland do different types of banking. While Switzerland focuses on wealthy individuals, Japan lends money to governments, including the United States. Japan and China each hold more than a trillion dollars’ worth of US Treasury bonds.

Currency investors focus on the critical role played by Japan at the centre of the global financial system. In the words of Martin Schultz, an economist at Fujitsu Research Institute in Tokyo: “Japan is a banker to the world and when risk rises, investors look for a safe bank.” Therefore, at times of risk, Japanese companies, insurers and investors move money home from abroad, driving up the yen. Foreign investors follow their lead.

In that light, the strong yen could be regarded as a vote of confidence in Japan’s benign economic environment, despite problems with sluggish GDP growth an ageing population. However, the strong yen creates a problem for Japan’s exporters because the money they earn abroad is worth less when it is repatriated. Companies such as Toyota cope well with currency fluctuations but would prefer a weaker yen.

The yen is most likely to stabilise when negative interest rates are abolished, Japan’s economy grows and the risk of war with North Korea recedes. Such a happy situation would bring relief not just to currency traders but to all the citizens of Japan.

N.Korea threat deepens US-Japan alliance

Japan and the United States have reaffirmed their close alliance in the face of threats from North Korea.

There was extensive coverage in the world’s media of the trip by the

US Vice President Mike Pence to South Korea and Japan this week, during which he pledged “100 percent support” for both nations.

As he visited the US Navy’s Atsugi base in Ayase southwest of Tokyo, Mr Pence said: “We appreciate the challenging times in which the people of Japan live, with increasing provocations from across the Sea of Japan.”

In South Korea, Vice President Pence said that the era of America’s strategic patience with North Korea was over.

The belligerent rhetoric between North Korea and the United States dominated headlines worldwide. There were many frightening stories about how the countries are on the brink of war

This alarming tone was in contrast to the jokey approach which is sometimes taken by the western press when they cover North Korea – a tone which the Japanese find quite un-amusing.

In the Japanese media, the threat of North Korea is taken seriously. That was especially true this week after Japan’s Prime Minister Shinzo Abe said that he believes the North Koreans have the capacity to attach biological weapons on their missiles.

Donald Trump’s rhetoric and behaviour divides opinion in Japan, just as it does in the United States and the rest of the world. For the sake of simple reporting, though, the international media usually use the words and actions of Mr Abe and his foreign minister, Taro Aso to gauge the state of Japan’s relations with America and other nations.

The BBC’s Tokyo correspondent, Rupert Wingfield-Hayes says the Japanese leaders give a “cautious welcome” to Mr Trump’s approach.

That may seem surprising, given Mr Abe’s previous warm relationship with President Obama, which led to many break-throughs on trade and diplomacy. Yet Rupert Wingfield-Hayes says that there was no progress on North Korea while Mr Obama was president. In fact, the situation became more dangerous.

The media will now be watching closely for the response to the North Korean situation from China. The US Defence Secretary Jim Mattis said America is working closely with the Chinese towards a nuclear free Korean peninsula.

Vice President Mike Pence is also keeping the door open to China. When questioned by reporters, he said he hoped a diplomatic solution could be found.

One significant step would be for China to cut off oil supplies to North Korea, leaving the heavily-sanctioned country in an even more isolated position.

Trump leaves Asia guessing on North Korea

Most politics in Japan is influenced by its two most important relationships; those with China and the United States.

Last week, President Xi Jinping of China visited President Donald Trump in Florida. The Japanese were not invited.

Both China and the US claim the summit meeting was a success. Mr Trump said there was “tremendous progress” in the US-China relationship during the talks.

By contrast, Japan’s current diplomatic relationship with China is in a poor state, with no recent top-level contact between Prime Minister Shinzo Abe and President Xi.

Mr Abe has attempted to build a rapport with Donald Trump over rounds of golf. And for reasons of both trade and security, Japan would like to see a peaceful, friendly relationship between the US and China.

That is also China’s goal, according to a statement on China’s foreign ministry website. Mr Xi apparently told Mr Trump: “We have a thousand reasons to get China-US relations right and not one reason to spoil the relationship.”

During his trip to Florida for the summit, Mr Trump took the decision to order a missile attack on Syria. He said it was in response to the use of chemical weapons.

Prime minister Abe sent a signal of support but China said it opposed foreign military action in Syria.

The US and Chinese presidents also discussed North Korea.

Mr Trump told the Financial Times before the meeting that “If China is not going to sort out North Korea, we will.”

So what signal did the missile strike on Syria send to North Korea and the rest of Asia?

Did it suggest that the US would consider a missile strike on North Korea to stop its nuclear weapons programme?

The Financial Times’ editorial said that unilateral armed intervention by the US in North Korea would be “calamitously risky.”

“If North Korea’s nuclear capacities were taken out with bunker-busting missile strikes, Pyongyang could destroy Seoul with its artillery almost immediately. Its missiles could reach Japan. Millions of lives would be at stake,” said the FT.