Chart Of The Day: Japanese Yen Fundamentals Shift Dramatically... Technicals Too

 | Mar 14, 2022 09:42AM ET

Japan's yen opened lower this morning, extending its drop to 0.5% versus the US dollar. It was the sixth straight day of gains for the USD/JPY pair.

The JPY fell to its lowest level since Dec. 15, 2016, almost a five-and-a-half-year low. Another 0.1% dip would bring the Asian currency to its weakest level since Feb. 2, 2016, more than a six-year low.

The currency's weakness may surprise many traders who have come to narrowly view the yen as nothing more than a safe haven currency, an indicator of risk-on or risk-off sentiment. But the underlying fundamentals that once made the JPY a so-called safe haven have changed in tandem with the economic climate.

The yen first became a haven currency because Japan had a trade surplus. In addition, in 2018, the repatriation of Japanese investors who had previously sought greener pastures in a negative interest rate economy created a steady demand for the local currency.

However, in the current environment, the yen's strongest driving force is the Japanese economy's extreme reliance on commodity imports . With raw material prices for everything from grains to metals to oil surging, Japanese importers will have to continue selling more and more yen to buy the US dollar.

If that's not enough, the interest differential will become increasingly favorable for the USD, as the Fed begins hiking , even as the Bank Of Japan gets left far behind, still considering whether it wishes to end negative interest rates.

Concurrent with this drastic fundamental shift, the technical picture is equally, if not more dramatic.