Overnight, Japan's central bank entered FX markets and bought the dollar. The yen has been very strong against the dollar. It is, in fact, trading at a 15 year high relative to the dollar.
What must not be overlooked, however, is that this is not simply a yen-dollar phenomenon. The dollar yesterday traded at par versus the Swiss franc and the euro is back up to $1.30.
This is a huge flight from the dollar. FT even notes that bunds were up while the Euro strengthened--an unusual occurrence.
Generally, euro strength would result in less demand for bunds. That they are both headed up at the same time would suggest that the dollar weakness is the primary mover in the markets right now.
It is unclear what is behind this flight from the dollar. Mainstream media and the financial media do not yet seem to be aware of it. Their stories tend to be focused on the BOJ's intervention more than the bigger picture. But something big may developing here.
The dollar weakness appears to be strongest against the yen and Swiss franc, so we possibly have more unwinds of past carry trade activity, but the undertow feels very strong. Stay tuned.
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