Despite today’s drop in US stocks, Japanese Yen crosses continued to edge higher.
USD/JPY took a stab at hitting 105, stopping short of that psychologically significant resistance level by a mere 10 pips. The rally in the dollar and the drop in gold prices suggest that the market’s risk appetite is improving. The VIX, which is a measure of equity market volatility actually dropped to the lowest level since October 2007. Carry trades thrive in low volatility environments which is a big reason why the yen crosses have been rebounding. 105 could be difficult for USD/JPY to break, especially if volatility reverts back to more normal conditions and the markets suddenly become risk averse once again.