International Investing

WSJ has a great blog post and chart:

Increasingly over the last several months the yen and the Standard & Poor’s 500-stock index have been inversely correlated. That is, when the yen has weakened, the equity market has done better, in part because of the popularity of yen-carry trades, where investors borrow in low-yielding yen to buy assets elsewhere. When the yen strengthens, this trade isn’t as profitable.

The yen’s weakness has been the S&P 500’s strength.

As a result, the yen has been as a result a good barometer for how comfortable investors are with risk, says Bill O’Grady, chief global investment strategist at A.G. Edwards, in a commentary today. “If the yen is weakening, it suggests investors are more tolerant of risk and will return to equities, emerging markets, etc.,” he writes. “A stronger yen, on the other hand, indicates continued risk aversion and will tend to benefit assets investors use for safety, such as Treasury bonds.