Safe haven

A safe haven is something investors move money into when they are worried, expecting it to hold its value or rise while riskier assets fall. In currency markets the traditional safe havens are the Japanese yen, the Swiss franc and the US dollar. Outside forex, gold and high-quality government bonds such as US Treasuries and German Bunds play a similar role.

Why these currencies?

The reasons differ:

• Yen: Japan is a large net creditor to the rest of the world, and the yen has long been a funding currency for carry trades. When risk appetite falls, investors bring money home and unwind carry trades, both of which mean buying yen.
• Swiss franc: a long record of political stability, a large current account surplus and a strong institutional framework.
• US dollar: the world's main reserve and funding currency, with the deepest bond market. In a global scramble for cash, demand for dollars rises.

Example

Illustrative scenario: a sudden geopolitical shock hits stock markets. A typical pattern would be USD/JPY and AUD/JPY falling as the yen strengthens, EUR/CHF falling as the franc strengthens, and gold rising. This is a tendency, not a rule.

Common misconceptions

• Safe-haven behaviour is not fixed. If a crisis starts in Japan or the US, or if a central bank is actively weakening its currency, the usual pattern may not appear.
• Central banks sometimes push back. The Swiss National Bank held a floor under EUR/CHF from 2011 to January 2015 to stop the franc rising.
• "Safe" describes how the currency has tended to behave in stress, not that trading it is low risk.

See what moves currency prices and currency correlation.