After being brutally beaten down over the past few years, the Japanese Yen has returned with a vengeance. Like the Standard and Poor?s 500 Index, most of the Yen crosses have now erased all of its year to date gains. The losses today have been extensive with AUD/JPY and NZD/JPY both down over 2 percent.
Yesterday, we indicated that retail traders were still going long, but the new lows reached today have stopped many of those traders out. Whether or not carry trades continue to sell off will be partially dependent upon whether the Nikkei breaks lower tonight as well. There is no major economic data due out from Japan this evening. The turmoil in the markets has pushed the chances of an August 23 rate hike by the Bank of Japan from 37 percent yesterday down to 20 percent today. It will be interesting to see if the Bank of Japan continues to add liquidity to the system as well. Finance Minister Omi said last night that the worst of the home loan crisis may be over.