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While the moves in US equities in recent weeks have been extreme, the currency markets have been even crazier, especially in the Japanese yen. In early July, the yen was trading at its weakest levels in over 30 years (higher values in the chart below), and shorting the yen was ‘easy money”. Those rumors of the yen’s death proved to be exaggerated. Just like that, the decline in the yen stalled out, unleashing a stampede of shorts looking to cover, causing one of the most extreme movements in the currency ever recorded. From its weakest point in early July to early August, the yen rallied a practically unheard-of 10%+. While the rally stalled in the short term, the USD/JPY cross remains down nearly 10% from its peak in early July.
To illustrate the gravity of this move, the chart below shows the rolling five-week (25-trading day) change in the USDJPY cross going back to the early 1970s. The current move ranks as the most extreme since the Financial Crisis and before that, the Russian Debt default in 1998. While the recent chaos in the currency markets reverberated throughout financial markets, including equities, so far at least, the impact this time around has been downright tame relative to the two most recent periods of similar volatility.
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