Last week, the Yen had it’s largest appreciation relative to the US dollar since the end of February. If this continues, you will certainly be hearing a lot of discussion on the Yen Carry Trade and the correlation between the Yen’s move and our stock market. When we had the last go around on this complex discussion, I was very critical of the crappy explanations that were being offered up and given credibility by being mentioned on CNBC and Bloomberg. You can read my thoughts on the Carry Trade here and the Yen/S&P 500 correlations here to see how I differed with the prevailing wisdom offered by others.

While I am sticking to my thoughts from those articles, there have been a few important changes to discuss why I am more concerned this time. In my opinion, the global capital markets in February were not conducive to a real unwinding of the carry trade. There were minimal reasons for investors to return capital to Japan due to the interest rate differentials. However, with the widening of credit spreads and some signs that Japan may be raising rates, I am paying more attention to this situation. Just note that Japan is still very fragile and any rapid changes to the Yen will present serious challenges to their export driven economy.