If you look at the nagative relationship between the two during historical crisis periods (in other words, as the term spread widening, Yen tends to be strengthening), it tends to be much stronger during stress periods than normal periods. (See charts below).
Also, just before the market crisis, the Yen tends to be strengthening at a faster than normal pace. And that trend tends to be reversed in an after-crisis periods.
Therefore, until the current strengthening trend for Yen reverse, we are still not out of the wood yet.
Prepare for more panics to come.
A risk radar model has been recently developed to identify multi-dimensional market risk, including ten risk factors: 1) Market Volatility; 2) Gold Favor; 3) Term Spread; 4) Yen Carry Trade; 5) Credit Spread; 6) Emerging Market Bond Spread; 7) FX Volatility (EUR,JPY,CHF,GBP,AUD); 8) Market Sentiment; 9) Market Liquidity; 10) Quality Nervousness. All variables are nomalized to derive the Z-score on a continous120-day rolling basis.
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