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How are the two largest Asian currencies reacting to the recent sell-off in global stocks?

Oct 12, 2018

  • Over the last three years, the Japanese Yen (JPY) has appreciated 6.56% against the US Dollar (USD) while the Chinese Yuan (CNY) has depreciated 8.96% against the dollar.  
  • Since touching 114.53 USD/JPY on October 03, 2018, the JPY has appreciated 2.07% against the USD to 112.16 USD/JPY. The appreciation represents a spike in demand for the JPY and can be attributed to investors flocking towards the safe-haven currency during recent market turmoil.  
  • The recent spike in demand for the JPY can also be seen in its realized volatility, which jumped 19.71% from 0.39% on October 3rd, 2018 to 0.47% on October 11th, 2018.  
  • The spread between USD/JPY 1-month implied volatility and USD/CNY 1-month implied volatility began to narrow on June 13th, 2018 as the USD/CNY’s 1-month volatility implied began to increase. USD/CNY's 1-month implied volatility almost doubled from 3.74% on June 13th, 2018 to 7.02% on July 23rd, 2018.  
  • The spike in 1-month implied volatility for the USD/CNY can be primarily attributed to growing uncertainty from the US-China trade war and investors entering currency derivative contracts to hedge potential future currency fluctuations.

     Source: Bloomberg

     Source: Bloomberg