Will the Yen regain safe haven status?

Last week Sentiment in Japan was elevated as the Japanese Economic data surprised for the better with the current account and trade balance data which were substantially better than expected .Core Machinery orders also surprised rising 1.4% against market expectations of a -6.8% MoM. The economic data aggregated with the Japanese government stimulus and bond purchase programs spurred enough optimism to fuel a rally in Japanese equities and raised hopes for an approaching Japanese recovery or at least a moderation in the pace of the economic deterioration.

Since bottoming at the 88 level against the Dollar the Japanese Yen has depreciated strongly reaching 6 month lows against the majors as fear for Japanese exports continued to loom. As fears for the Japanese exports grew the Yen began losing its safe haven status. The market it seems was betting the Japanese economy would lose its relative advantage causing the Yen to play a bipolar game as the market was still not willing to give up the Yen as a safe haven to a full extent and when risk aversion played a rule the Yen still gained and on the contrary the Yen has also been a strong gainer whenever the economic outlook seemed to improve. It is as if the market was not sure if the Japanese economy is relatively stable or sensitive. The Japanese economic data stream in the last months was exceptionally grim the GDP and exports figures were at historical lows. It was evident the Japanese economy was starting to contract and fast and with it the Yen status as a safe haven was beginning to fade. However recently investors are beginning to question how much time can the Japanese economy contract so rapidly. After the positive data of last week, another stream of positive data from Japan could add to the notion that maybe the worst for the Japanese economy is already priced. The Japanese economy contracted so fast that even if the Japanese economy will continue to contract investors might assume it is relatively stable to other economies. Since it is all about stability the Yen might resume its status as a safe haven.