Is the yen the canary in the coal mine for a currency analysis?

Growing economic risk in Japan, reflected in the plunge in the Nikkei 225 stock index, seems to be finally hurting instead of helping the Japanese yen. So on our market tone scale, i.e. price action relative to the news, we would say the yen is acting normally for a change.

Starting in late 2004, the correlation between the Japanese yen and Japan’s stock market has been relatively tight. A falling stock market meant increased economic risks and increased economic risk meant repatriation back into Japan by major players.