End Of Yen-Stock Market Link?

One month ago, on May 20, I predicted the end of the sucker rally in U.S. stocks, based both on the fact that U.S. stocks were overvalued from a fundamental point of view and that they were overbought from a technical point of view. At that day the S&P 500, closed at 1413.97, after having fallen 1% during the day. Yesterday, stocks closed at 1317.93, or nearly 7% lower.

Anyway, as pleasing that may be, the purpose of this post isn't merely to say "See, I told you so". I also wanted to bring attention to the fact that this downturn has differed from previous downturns in one important aspect, namely in that it has not been associated with a rising value of the yen and the Swiss franc. Indeed, between May 20 and Jjune 20, the yen actually fell nearly 3% against the U.S. dollar, while the Swiss franc rose was almost unchanged. The same relationship is essentially true if you relate the yen and Swiss franc to the euro, the pound or the Australian dollar as they have been roughly unchanged against the U.S. dollar. The New Zealand dollar is on the other hand down 1.7% against the U.S. dollar and so down also against the Swiss Franc, but even the Kiwi is up more than 1% against the yen.

Is this the end of the negative correlation between the yen and stock market movements? That may be a bit premature, but what this illustrate is that the relationship is not always reliable.