EUR/JPY Finds Support With Positive Risk Sentiment, But Yen Remains Attractive
EUR/JPY has rallied, yet the Japanese yen remains attractive as a hedge against present and continued global uncertainties. Risk sentiment has no doubt helped the euro to beat the Japanese yen in recent weeks, but the upside may be short-lived, even if risk sentiment remains positive. Japan GDP growth technically out-performed the euro area this year. Meanwhile, the euro area is now flirting with deflation, which is not presently a problem for Japan. Furthermore, while EUR/JPY might be trading at a discount to fair value (using a long-term PPP model), I believe the current uncertainties that lie before us (including Brexit, which remains a risk to the euro area, not to mention COVID-19) could help to support an even stronger JPY premium. As head into the U.S. elections and the Brexit deadline at year-end, not to mention the new year in which fiscal interventions begin to unwind (and reveal which economies have been "swimming naked", to reference Buffett), the Japanese yen seems like a safe place to park capital.
Seekingalpha · 5d ago