LIVE MARKETS-All aboard the yen train

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ALL ABOARD THE YEN TRAIN

It's commonly deduced that there are no winners in a trade war, and while that may be true for the economy, it doesn't ring true in the world of FX.

Since Trump announced his reciprocal tariff plan on April 2, the yen is up 5% against the dollar, some might call it a trade war winner.

"The strengthening has been driven partly be repatriation flows as Japanese institutions have sold foreign assets and brought capital home," writes Udith Sikand, senior analyst at Gavekal.

But that is only half the story, Sikand believes, as the yen is also benefitting from foreign investors buying undervalued and under-owned yen-denominated assets.

Since April 2, Japan's stock market has been one of the better performers. The Nikkei 225 .N225 ended Friday's session just 0.1% below its pre-Liberation Day close, while the S&P 500 .SPX and STOXX 600 .STOXX are both more than 3% down.

"In short, the increasingly strong impression among investors that the age of American exceptionalism is over is generating capital flows into the yen," says Sikand.

"This suggests that yen strength is here to stay."

RBC BlueBay Asset Management also remains positive on the yen, although believes the 140 level against the dollar "represents an upcoming test". It last traded at about 143 per dollar.

"We remain inclined to think that the US is eager to have a close relationship with Japan, given its strategic importance in the Pacific," writes Mark Dowding, chief investment officer for RBC BlueBay's fixed income team.

"Both Washington and Tokyo would like to see a stronger yen."

And with inflation in Japan remaining elevated, the Bank of Japan has recently reiterated it will continue to raise interest rates if underlying price pressures converge towards target as projected.

(Samuel Indyk)

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