It always happens that the Yen currency will soar when North Korea launches missiles across Japan. This seems illogical because the one who might get the threat is Japan, but the Yen will usually strengthen. That is what is called the ‘Safe Haven’ asset or currency one of which is the Yen.
Many traders or traders do not understand this (safe-haven).
The concept of saying investors will look for quality assets in times of crisis and uncertainty is an outdated concept. Furthermore now, there are a few who consider the "Bitcoin" as a safe-haven. The market has long assumed safe-haven assets to be in US dollars, Euros, Yen, and Swiss Francs.
The selection of safe-haven assets by investors is a subject that has long been debated by academics and analysts. Among the issues of debate is whether the asset is indeed a safe-haven or it is only due to the carry trade factor.
It is important for you to know what risk-on and risk-off are in order to understand market sentiment.
When the market is stable (risk-on or not risky), usually carry trade will play an important role. Carry trade means the action of investors borrowing money from countries with low-interest rates and reinvesting it into assets that can provide high yields.
Japan is usually the choice of investors to borrow money which in turn weakens the Yen, and this is the other way around if the situation becomes risky (risk-off) with the Yen strengthening.
So, that's why Yen strengthens every time North Korea launches missiles due to Yen's nature as a safe-haven.
One question here I leave for you to think about. Is the Yen strengthening due to its safe-haven nature? or carry trade that moves the other way around?
We will answer this question in the second series later with a more in-depth discussion of safe-haven currencies.
