JPY Historically The Best Performer In US Recessions

US recession fears continue to rise. Fed Chair Powell recognized the threat of such an eventuality in remarks to the US Senate on Wednesday, while former NY Fed Governor Bill Dudley stated that a US recession is inevitable in the next 12-18 months. A number of sell-side analysts are also stating a recession is a strong risk for 2023. As we outline below, from a G10 FX standpoint, JPY is the best performer, historically, during US recessions.

• The table below presents average G10 FX performance during US recessions. Note we use NBER dates for recession months and our sample goes back to the start of the 1990s.
• The first column represents average monthly returns by currency against the USD. We also present the best monthly performance during US recessions and also worst performing month, again by currency.
• JPY has the highest average monthly returns of just over +0.5%. This is followed by the other traditional safe haven CHF, at just under +0.2%.
• The rest of the G10 FX complex falls, with EUR outperforming the likes of GBP, NOK and SEK. Commodity FX also fall, but on average see outperformance again some of the EU currencies.
• For most currencies we tend to see larger falls than rises during recession periods, which is to be expected. The best monthly returns tend to come towards the end of the recession dates.

Table 1: G10 FX Performance During US Recessions (1990-2020)

Source: NBER/MNI - Market News/Bloomberg

• The clear caveat in the current cycle for JPY is a less favorable external trade balance position. However, the trade position also deteriorated sharply through the 2008 recession, as oil prices spiked, but this didn't prevent JPY rallying sharply during this period.