The Japanese yen was rising as aversion to risk took hold, with the U.S. dollar dropping to ¥88.87, from ¥89.04 late in New York. When markets were rising for the first few days of January 2009, the yen rose steadily from 90 to 94. Have to say again that the yen dollar rate is the best indicator to follow.
The posting on following the yen rate:
Cheap valuations are a reflection of risk aversion, the rush to US Treasuries is a sure sign of risk aversion, the rush to USD and yen are a sign of definite risk aversion.
Gem #1: Markets will only start a genuine recovery when risk aversion subsides
Gem#2: Risk aversion reduction will be immediately reflected in weaker USD and yen
The fall in USD over the last two days is more due to the zero interest rate regime enacted by Federal Reserve, so that should not be a sign of risk aversion reduction.
The best guide for locating current markets' bottom: WHEN USD and YEN BOTH STARTS TO FALL IN VALUE in a sustained pattern. When these two currencies fall, it show a willingness to move exposure into other currencies or assets, be it stock or bonds. Before they are reflected in the prices, the signal will be most apparent in the currencies.
However, even then we cannot really ascertain a buying trigger. So, my advice would be to break up you investing funds into 3 portions, get ready your list of stocks to buy.
Catalyst #1: When yen/usd rate moves back to 94, plonk down 1/3 of your funds
Catalyst #2: When the rate moves to 97, move the second portion
Catalyst #3: When the rate breaks 100, move the rest in
A point not missed here is that if yen weakens against the USD, the latter would be gaining in strength. However, I am using the yen/usd rate as a guide, as I believe when the yen starts to weaken, the USD would also weaken, but not by as much - i.e. the USD would gain ground against yen but at the same time lose ground against the euros and other major currencies. I use the yen/usd rate because that is most widely followed. The yen is used as the determinant because it was the most popular currency for carry trades, the unbelievable strength now is due to risk aversion as the Japanese exporters are basically losing money and cannot compete below 90.