The Japanese yen appreciated against most of the majors, including the US dollar, Euro, and British pound, as hints of risk aversion remain. Indeed, many of the classic signs of deleveraging pervaded the markets, as the DJIA fell nearly 200 points, demand for Treasuries surged, and the CBOE Volatility Index (or the VIX) edged higher.

What ignited this sentiment? A Barron’s article noted that it was increasingly likely that the government would have to bail out Fannie Mae and Freddie Mac, sending shares of the mortgage giants down more than 22 percent.  As we mentioned last week, financial institutions are by no means in the clear yet, and as a result, the Japanese yen crosses remain at great risk for declines. Tonight, the Bank of Japan is widely expected to leave rates steady at 0.50 percent. While it is clear that economic growth in Japan is slowing dramatically and the threat of recession exists, rates are so low in the nation that the central bank has almost no room for maneuver when it comes to monetary policy. Nevertheless, risk trends tend to have far greater bearing on price action in the Japanese yen, so the upcoming rate decision shouldn’t have a big impact on the low-yielding currency.