The Japanese yen rocketed higher on Monday as traders unwound positions in risky assets, as the yen is one of the key components of the forex “carry trade.”
In fact, the yen managed to gain the most versus high-yielders like the Australian dollar and New Zealand dollar, but also rallied against everything form the Canadian dollar to the British pound. There were other indications of market-wide risk aversion as well, as the DJIA ended the day down over 500 points, demand for Treasuries surged, and the CBOE’s VIX Volatility Index hit the highest levels since the Bear Stearns fiasco in March. Indeed, with the Japanese Yen interest rate forecast looking neutral, the currency will be particularly vulnerable to choppy price action. If fears for the health of the financial markets linger into Tuesday’s trading day, the Japanese yen is likely to see additional gains.
Related Article: Japanese Yen: Trading Signals Forecast Gains vs. Euro, US Dollar, British Pound
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