On Monday, the yen hit an 18-month high against the dollar, sending the Japanese currency exchange traded fund (ETF) up. Traders retreated from "risky" assets amid severe nervousness over the condition of the financial sector. Peter Garnham for Financial Times reports that sliding Asian equity markets is one reason investors are unwinding the yen carry trade. The carry trade is where lower-yielding currencies are sold to fund the purchase of riskier, higher-yielding assets elsewhere. Japan’s chief cabinet secretary, Nobutaka Machimura announced that Japan would not intervene in currency markets, sending the yen into an accelerated rally.

The yen rose to a high of 109.13 before settling to 109.50, up 1.1%. The CurrencyShares Japanese Yen Trust (FXY) launched in February.  It is up 10.4% since inception.


For full disclosure, Tom Lydon is a member of the board of Rydex Investments.

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