Is the Yen good for anything?

As you know I incorporate currency into my portfolio soup. This article in the WSJ.com sheds some light into the parallels between currencies, the markets, and of course our perception of risk.
At the heart of all this is the carry trade which is effectively selling weak currency (Yen) and buying high yielding currency (Kiwi, AUS dollar, etc). As appetites for risk (greed) begin to run the spreads between this pair trade widen and money is made. As fear (or risk aversion) enters the spread tighten as speculators are forced to sell the higher yielding currency and buy back their low yielding currency. Borrowing money to make more money is always a risky play despite their obviously appealing rewards.

As the Japanese Yen Goes,
So, Too, Do Stocks -- Usually

By JOANNA SLATER
November 14, 2007; Page C1

To understand whether global investors are feeling fearful -- or optimistic -- keep an eye on the Japanese yen.

That's because the yen has become an unexpectedly important barometer of investors' appetite for risk world-wide. If investors get worried, the yen often strengthens. Conversely, when investors are willing to go out on a limb, the yen tends to weaken.

That's what happened yesterday, when U.S. stocks surged amid falling oil prices and hopes that the impact from the subprime-mortgage crisis on banks will be contained. At the same time, the yen weakened against the dollar, with one dollar buying 110.89 yen late in New York, up from 109.67 yen on Monday.

The movements aren't coincidental. They stem from the unusual influence of Japan's super-low interest rates on global markets from New York to New Zealand.

They also explain why the yen, itself a perennially weak currency, has strengthened 11% against the dollar since the end of June. It's not just because investors are discouraged about the U.S. economic outlook. It has a lot to do with the fact that they're reassessing the degree of peril in the market.

The yen is now "sort of like the canary in the mine," says Jerome Abernathy, chief investment officer of Stonebrook Capital Management, a New York currency manager. "It's quite sensitive to risk aversion."

For the complete article go to:

As the Japanese Yen Goes,

So, Too, Do Stocks -- Usually