The Japanese Yen rose to a 2 year high against the US dollar as the stock market extended its weakness by another 200 points leaving carry trade liquidation the biggest story in the currency market.
Volatility is back on the rise which is never good for carry trades. It has been difficult for carry traders to keep up with the triple digit swings in the stock market. What we know for sure however is that according to the bond market, traders are definitely become more risk averse and if that continues, so will carry trade weakness. USDJPY looks vulnerable to further losses after making a new two year low. Despite the prior weakness of the Japanese Yen, both the trade surplus and all industry activity index was worse than expected but that did not stop the Yen from strengthening.