‘Smart money’ hasn’t been this bearish on the yen since 2012
For many Wall Street pros, the Japanese yen falls into the “most important asset” category, argues Dana Lyons of J. Lyons Fund Management. That’s because the yen has become the poster child of the so-called carry trade in which traders borrow at one country’s low rate and convert those funds in a locale offering the chance at a higher return.
Even to observers, the yen USDJPY, -0.13% can be a useful barometer of risk appetite because when it’s falling it tells traders that rates will remain depressed in Japan. This signal, they believe, frees them up to use their borrowed money to take on riskier global assets. Conversely, when the yen is rising, anticipation of carry-trade unwinding spurs the selling of those assets.
“For the most part, as goes the yen over the past several years, so goes the carry trade—and risk-on assets,” Lyons said in a blog post. “The relationship between the yen and equities has been very tight