After a perfect year in 2017 (S&P 500 up every single month), equity markets are struggling.

The S&P 500 just finished down 2 months in a row (February, March) for the first time since early 2016. Meanwhile, the Japanese Yen is rising, leading all major currencies against the Dollar in 2018. Are these facts related? Can investors count on the Yen acting as a safe haven during times of equity market stress? Let’s take a look…

Data Source for all charts/tables herein: (Philadelphia Yen Index, S&P 500 Price Returns)

With data on the Japanese Yen going back to 1977 (Philadelphia Yen Index):

  • The Yen has been positive 52% of the time during down months for the S&P 500. In the worst monthly declines for the S&P 500 (<-5%), the odds of a positive Yen increases slightly, moving up to 55%.
  • From a return standpoint, the Yen has performed better in down equity months than up months (+5.0% annualized vs. +0.6%) and better still during the worst down months (+9.2% annualized vs. +5.0%).

  • During the 15 worst down months since 1977, the Yen was positive 11 times (73.33%).
  • During the largest equity market declines, the Yen has had mixed results. During the 2007-09 bear market, the Yen performed admirably, gaining 18%. But in the prior bear market (2000-02), the Yen declined 12.8%.
  • Why the disparate performance? The Yen’s status as a safe haven has varied greatly over time, becoming more pronounced in recent years (post-2005).

    This is a by-product of the Yen’s oscillating correlation with the S&P 500. The Yen has at times moved in the same direction as the S&P 500 and at other times in opposite directions:

  • In the 3-year period leading up to August 2001, the correlation between the Yen and the S&P 500 hit an all-time high (0.46).
  • In the 3-year period leading up to October 2008, the correlation between the Yen and the S&P 500 hit an all-time low (-0.66).
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