Rise in S&P 500, not enough to weaken Yen

Yen is sharply higher, since FED released its monetary policy last night, which showed FED policymakers have scaled back their expectations of future growth and inflation as well as rate forecast. It is understandable that Yen rose in backdrop of weaker Dollar. What is puzzling is Yen gained more by this morning than most other counterparts including Euro and Pound.

This rise is more puzzling, when we look at US benchmark stock index, S&P 500, which rose sharply after FED policy and currently trading at 2035 area, a level not seen since last December. With today’s rise S&P is now positive for the year.

Still Yen’s upbeat mood is not justifiable unless it is still pricing risk aversion. From that perspective, it would be fair to say, Yen is tracking more closely risk aversion at home than broad based. Despite sharp rise in S&P 500, Japanese benchmark has underperformed global peers. In the morning, Nikkei225 was up more than 1% and now it is down little more than 0.3%.

Unless Nikkei recovers, Yen could rise much faster than its other global peers.

In January, when global market was struggling with panic, USD/JPY’s 20 day rolling correlation to S&P 500 reached close to 90% but by March it has fallen to negative before bouncing in recent days. Still Nikkei is more correlated to Yen’s move than S&P 500.

Yen is currently trading at 111.5, while Nikkei is struggling around 16850.