The Japanese yen saw an exceptionally wild week of trading, rocketing more than 1 percent higher against most of the majors while tumbling almost 1.5 percent against the New Zealand dollar and Canadian dollar.
What gives? There was a clear breakdown in carry trades as volatility picked up, interest rate expectations across the majors shifted, and USD/JPY risk reversals fell. Furthermore, there was the drop in interest rate expectations for the Bank of Japan, as they are now pricing in absolutely no change as of August 15. Of course, traders also need to keep in mind that a jump in risk aversion could trigger gains for the Japanese yen if the correlation between the DJIA and USD/JPY improves.