What's Happening:
The rule of thumb over the last year has been "buy the yen when stocks are down." But that all may be changing.
Stocks have been less than stellar lately yet the yen has pretty much been sliding against the buck. That's not exactly how it worked when sub-prime, credit crunch and write-downs were the new buzz words on Wall Street.
But yesterday the yen is giving us a little taste of old - stocks are weaker and the yen is firming up. But then again, that yen strength could be mostly technical. The dollar/yen pair is butting its head on overhead resistance.
After the run it's had since the middle of March, a bit of a corrective move (at the very least) seems in order.
And while the yen's yield differential is not improving in this inflation-focused environment, a break above the key USD/JPY level could hit the yen hard and quick.
Still, in the short-term, playing the dollar short against the yen gives you a decent risk-reward set-up.
Stay tuned for more updates on the yen and its role in the global markets in the weeks to come...
