Why Yen Is Haven

It is normally thought that the currencies of countries with ultralow interest rates are more likely to come under selling pressure. Low interest rates, after all, do not appeal to those who want their nest eggs grow.

They do, however, appeal to investors who get an itch to place risky bets. Speculators sometimes place these bets by borrowing in yen, then using the Japanese currency to buy a currency of a country with high interest rates and high market fluctuation risk.

There is a term for this: the yen-carry trade.

In times of market turmoil, however, currencies of countries with ultralow interest rates are more likely to come under buying pressure. The speculators, now worried, want to unwind their carry-trade positions.

As a result, the yen spikes.

Analysts' views are divided as to how common carry trades are. Still, though, psychology plays an important role in the market, so mere expectations for carry-trade unwinding are enough to convince investors to buy the yen during times of turmoil.

As of the end of 2015, Japan's net foreign assets -- overseas assets held by the government, companies and individuals minus their overseas debts -- came to about 339 trillion yen ($3.36 trillion). This is one of the world's largest asset piles.

It is also behind the yen's haven status. An economic shock would prompt Japanese investors to repatriate their foreign-currency-denominated assets. In other words, there would be a sudden rush to buy yen.

That said, Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities, is skeptical that the yen will retain this status forever. If the country's fiscal conditions continue to deteriorate and inflation rears its head, the yen would be kicked out of club haven.