Japanese Yen Hit Hard as Volatility Cools

A decline in volatility led the Japanese yen fell versus the majors on Monday, dropping more than 1 percent versus the greenback and Swissie and plunging over 3 percent against the British pound and Canadian dollar.

The biggest losses were against the high-yielders though, as the currency lost 10 percent against the Australian dollar and 5.38 percent against the New Zealand dollar. Indeed, demand for carry trades rose as the CBOE’s VIX Index dropped from Friday’s record high. Furthermore, looking at the solid inverse correlation between the Japanese yen and US stock markets, it isn’t entirely surprising to see such declines given the global rallies in equities. In the near-term, the Japanese yen could continue to slip as traders become a bit more risk seeking. In the long-term though, my bias is bullish on the low-yielder, as significant perils loom for the financial markets given persistently tight credit conditions.

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