The recent euphoria was never acknowledged by the JPY. Why do we watch the JPY?

When the JPY weakens, the stock market (mainly the US) tends to rise, and when the JPY strengthens, equity markets tend to fall. Why this relationship?

The JPY is a great “mood” risk indicator due to the carry trade, investors use the JPY to fund cheaply due to low rates in Japan, sell it and buy the USD, all in order to buy riskier assets such as US stocks.

Depending on global correlations, the JPY tends to move in tandem with other equity markets at times as well.

The initial bullish continuation from the Fed was to be faded. We outlined our arguments here this morning.

Note that the JPY has been diverging rather big over past days. SPX (orange) traded some 3% lower when the JPY traded at these levels around mid-January.

The same divergence has been unfolding between the Eurostoxx 50 (orange) and the JPY (white).

Do you get carried away by Powell’s talk or do you “trust and follow” the big capital flowing in the mighty Yen?

Source: charts by Bloomberg